After a sluggish start to the year, Mastercard (NYSE: MA) stock has quietly posted strong returns over the past three months.Mastercard stock has returned some 18% since late July, which has accounted for pretty much all of its gains, as shares are up about 19% year-to-date.Mastercard’s strong third quarter results, released Thursday, show why the second largest payment processor’s stock price has been moving higher recently.Is Mastercard stock a buy after earnings?
Revenue fueled by rise in gross dollar volume
In the third quarter, Mastercard reported a 13% year-over-year increase in revenue to $7.4 billion, which topped consensus estimates of $7.26 billion.Revenue was fueled by a 10% increase in gross dollar volume on its network to $2.5 trillion. Cross-border volume rose 17%, while switched transactions grew 11%. The rise in credit card spending could be attributed to several factors, including an economy that grew at a 2.8% clip, lower interest rates, reduced inflation, and rising consumer confidence.Mastercard was also buoyed by an 18% increase in value-added services and solutions. These gains were fueled by demand for its consulting and marketing services, and its fraud and security solutions.While Mastercard has proven to be an all-weather stock over the years — with only one negative year since 2010 — it certainly performs better when the economy is strong.Over the past 5 years it has recorded a 13% annualized return and over the 10 years, it has posted a 20% annualized return.While revenue was up solidly in Q3, net income only increased 2% to $3.,3 billion, while earnings per share rose 4% to $3.53 per share. The earnings drag was due to a 25% rise in operating expenses — about half of which stemmed from one-time special items, including $190 million for restructuring charges and $176 million for litigation provisions.Minus those items, Mastercard saw adjusted net income climb 12% to $3.6 billion, and adjusted earnings per share rise 15% to $3.89 per share. The adjusted EPS easily beat estimates of $3.74 per share.“These results reflect healthy consumer spending and ongoing solid demand for our value-added services and solutions, where net revenue increased 18%, or 19% on a currency-neutral basis,” Michael Miebach, Mastercard CEO, said. “We continue to invest in our suite of differentiated services to grow our addressable market, protect the ecosystem and add value in every transaction. This includes the planned acquisitions of Recorded Future and Minna Technologies, which are expected to add leading AI-powered threat intelligence and subscription management capabilities to meet the needs of our customers.”
Is Mastercard stock a buy?
Mastercard has some huge competitive advantages, stemming from its duopoly in the payment processing space with Visa (NYSE:V) and its simple business model. Simply put, it makes most of its money on swipes and has no credit risk and not a lot of overhead compared to other large companies. That allows Mastercard to post huge margins, like a 59% operating margin and 46% profit margin, which gives it tons of free cash flow to reinvest in the business.Now, there is legislation proposed in Congress that could impact its duopoly, so that is worth watching. But it has been around for a few years, and nothing has come of it yet.In the fourth quarter, Mastercard expects revenue and adjusted earnings growth in the low teens, which would be on par with last quarter.Mastercard got a slew of price target upgrades after earnings from Wall Street analysts, including a $65 bump from KeyBanc to $580 per share and a $13 hike from JPMorgan Chase to $593 per share. That would represent about a 15% increase.Mastercard, as mentioned, is really an all-weather stock, due to its competitive advantages, business model, and the growing demand for cashless payments. But it is also coming into a good market, with inflation down and rates dropping, which should spur more spending.The valuation is a little pricey, trading at 37 times forward earnings, so that bears watching. But if you can get Mastercard on a dip, it is a great long-term stock to own.More By This Author:Canary Capital Filed For A Spot Solana ETF In The United States
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