Up 36% Since The Start Of 2023, Where Is Mastercard Stock Headed?

Mastercard’s stock (NYSE: MA) has gained approximately 36% since the start of 2023 as compared to the 33% rise in the S&P500 index over the same period. Further, at its current price of $473 per share, it is trading just above its fair value of $471 – Trefis’ estimate for Mastercard’s valuation. 

Amid the current financial backdrop, MA stock has shown strong gains of 35% from levels of $355 in early January 2021 to around $475 now, vs. a similar change for the S&P 500 over this roughly 3-year period. However, the increase in MA stock has been far from consistent. Returns for the stock were 1% in 2021, -3% in 2022, and 23% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MA underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Financials sector including V, JPM, and BAC, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MA face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company surpassed the street estimates in the fourth quarter of 2023, reporting a 13% increase in net revenues to $6.5 billion. It was mainly due to a 10% growth in the gross-dollar volume (GDV), an 18% rise in the cross-border volume, and a 12% gain in the number of switched transactions. Further, value-added services and solutions also posted a 19% jump in the quarter, primarily driven by higher revenues from cyber and intelligence solutions. On the cost front, the operating expenses as a % of revenues witnessed an unfavorable increase, leading to an operating margin of 51.5% vs 54.7%. Overall, the net income improved 11% y-o-y to $2.8 billion.

The company’s top line grew 13% y-o-y to $25.1 billion in FY 2023. It was because of strong growth in each of the key metrics – GDV (12%), cross-border volume (24%), and number of switched transactions (14%). Further, operating expenses as a % of revenues slightly decreased in the year, resulting in a 0.7% improvement in the operating margin to 55.8%. Altogether, the net income was $11.2 billion – up 13% y-o-y. 

Moving forward, we expect the first quarter results to follow the same trend. Overall, Mastercard’s revenues are forecast to touch $28.12 billion in FY2024. Additionally, MA’s adjusted net income margin is expected to be around 48% in the year, leading to a net income of $13.44 billion. This coupled with an annual EPS of $14.43 and a P/E multiple of just below 33x will lead to a valuation of $471.

[1] Returns as of 2/26/2024
[2] Cumulative total returns since the end of 2016

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