Why Mastercard Stock Gained 25% This Year

Mastercard’s stock (NYSE: MA) is up approximately 25% year-to-date compared to the 27% rise in the S&P500 index over the same period. In comparison, Mastercard’s peer Visa (NYSE: V) has returned about 22%. So what are some of the factors driving Mastercard stock higher? 

The company outperformed the street estimates in the third quarter of FY 2024. It reported net revenues of $7.4 billion, up 13% year-over-year. Several factors are driving growth for the company. For one, cross-border volumes rose 17% year-over-year led by higher international travel as well as e-commerce growth. Gross dollar volumes were also up 10%, while the number of switched transactions was up 11%. Switched transactions refer to the transactions processed via the Mastercard platform.  Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Further, revenues from value-added services and solutions grew 18% in the quarter driven by higher demand for the company’s consulting and marketing services as well as the scaling of its fraud and security and identity and authentication solutions. Adjusted net income was up by about 12% compared to last year to $3.6 billion, growing slightly slower than revenues due to higher general and administrative expenses.

The increase in MA stock over the last 4-year period has been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were 1% in 2021, -3% in 2022, and 23% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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. So what’s the outlook like for MA stock?

There are a couple of trends that could drive MA stock going forward. The Fed’s recent interest rate cuts could help reduce borrowing costs and potentially drive spending on credit cards, directly benefiting Mastercard’s transaction volumes and fee revenues.  Moreover, Mastercard’s investments into expanding in emerging markets, including regions such as Asia, the Middle East, and Africa could give the company more scope for growth given its highly recognizable brand and the increasing push toward digital and cashless transactions.  Mastercard has been doubling down on its shareholder returns. The company’s board recently approved a new share repurchase program, authorizing the company to buy back up to $12 billion in stock. The company also raised its quarterly dividend to $0.76 compared to its previous dividend of $0.66. We value Mastercard stock at about $518 per share, which is roughly in line with the current market price. See our analysis of Mastercard’s valuation. 

[1] Returns as of 12/18/2024
[2] Cumulative total returns since the end of 2016

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