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Mastercard’s stock (NYSE: MA) is up approximately 8% YTD as compared to the 12% rise in the S&P500 index over the same period. In sharp contrast, Mastercard’s peer Visa (NYSE: V) has given near zero return YTD. Overall, at its current price of $457 per share, MA is trading 12% below its fair value of $518 – Trefis’ estimate for Mastercard’s valuation.

Amid the current financial backdrop, MA stock has shown strong gains of 30% from levels of $350 in early January 2021 to around $455 now, vs. an increase of about 40% 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 JPM, V, 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 outperformed the street estimates in the second quarter of FY 2024. It reported net revenues of $6.96 billion – up 11% y-o-y, primarily driven by a 15% jump in the cross-border volume, a 6% rise in the gross-dollar volume (GDV), and an 11% increase in the number of switched transactions. Further, revenues from value-added services and solutions grew 18% in the quarter. On the cost front, the operating expenses as a % of revenues witnessed a slight increase, leading to an operating margin of 58% (marginally down on a year-on-year basis). Overall, the net income improved 15% y-o-y to $3.26 billion.

The company’s top line grew 11% y-o-y to $13.3 billion in the first half of FY 2024. It was due to positive growth in key metrics – GDV (7%), cross-border volume (17%), and number of switched transactions (12%). Further, operating expenses as a % of revenues decreased in the year, resulting in a 0.9% improvement in the operating margin to 57.4%. Altogether, the net income rose by 20% y-o-y to $6.27 billion.

Moving forward, we expect the same trend to continue in the third quarter. Overall, Mastercard’s revenues are estimated to touch $27.93 billion in FY2024. Additionally, MA’s adjusted net income margin is expected to be close to 48% in the year, leading to a net income of $13.31 billion. This coupled with an annual EPS of $14.30 and a P/E multiple of just above 36x will lead to a valuation of $518.

[1] Returns as of 8/12/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.