Mastercard Inc (NYSE:MA) has Underperformed its Peers but Fundamentals are Strong
2017 is shaping up to be the year of rising interest rates and increasing profits for banks and credit card companies. But the recent performance of Mastercard Inc has underwhelmed to a degree. The stock has performed in a rather lacklustre way against its competitors in Visa Incorporated, Verizon Communications (NYSE:VZ), Fidelity National Information Systems, et al. Currently, Mastercard’s dividend payout is 21.41% and its dividend yield is 0.74%. Compared to Mastercard’s peers, the average dividend payout is 42.04% and the dividend yield is 1.05%. For MA stock holders, these numbers are none-too-flattering. However, analysts agree that if MAs dividend score is maintained, there could be some dividends in the pipeline moving forward. Compared to its peers, Mastercard’s dividend quality score is noticeably higher. It is currently at 92 while the peer average is at 54 (data provided by CapitalCube).
Mastercard Peers – Comparative Analysis
There are many positives to look at when considering Mastercard stock. For starters, the US division of the company is performing well relative to its peers. While earnings growth is a little disappointing, the area where MA shines is rates of return (ROR). The company’s robust profitability will certainly propel the stock moving forward. Mastercard’s capital investment is minimal. This suggests that the company is deriving tremendous profits from its core business operations.
With additional interest rate hikes in 2017, we are likely to see ongoing profitability for Mastercard. Consider that the year-on-year revenue growth of MA is 11.47 (TTM), while that of its industry peers averages out to 14.9. Where MA shines over its competitors is with earnings growth. MA has a 6.59 TTM earnings growth (year-on-year percentage), while its peers are currently falling at -10.82. These numbers simply point to optimism for MA stock and that bodes well for long-term call options for binary options traders.
What’s Going on Behind the Scenes: Long or Short for Traders?
As a trader, there are some encouraging signs for MA stock. For starters, the current price is comfortably holding above the 50-day MA of $110.60 and the 200-day MA of $102.92. The trend since February 2017 remains bullish. We are currently seeing short-term reversals but these are unlikely to hold up for any significant period of time. Then, there are other clear signs as to the future direction of MA stock. In 2017, three major upgrades of Mastercard stock took place. These included the following:
- RBC Capital Markets upgraded MA to Top Pick stock in January 2017
- Wedbush upgraded MA to an Outperform stock in January 2017
- Loop Capital upgraded MA to a Buy rating in February 2017
The Final Word: Security Acquisitions are Growth Drivers for Mastercard
Returning to our Dividend Yield vs Dividend Quality Score we see that MA slots into the low yield, high score category. Ideally, MA would like to be in the high yield, high score quadrant but that belongs to companies like Western Union Company (NYSE:WU), Verizon Communications, and Fidelity Information Services. From another perspective, several new acquisitions by MA have proven beneficial to the company’s security offerings.
Mastercard, like Visa, AMEX and Discover, has been battling enhanced security protocols vs customer convenience. In March 2017, MA acquired NuData Security. This company is engaged in fraud prevention via passive biometrics technology. After Q4, earnings for 2016 were reported in January 2017, MA’s growth in ‘other revenues’ was measured 21% higher (year-on-year). And fueling that strong growth is enhanced security and fraud detection. That’s what makes biometric security company acquisitions like NuData so significant.