MasterCard (MA), the second largest payment system in the world, is a credit card services provider. The company has been on a continuous up-trend and is expected to generate returns that exceed the S&P 500. The company earns small percentages on each transaction made by every debit or credit card through its network.
The company works as an intermediary with very little risk while playing an important role in the global market. Merchants using the network benefit from reduction in fraud and higher consumption, while users enjoy the convenience of being able to withdraw money directly from their bank accounts. The company continues to expand internationally which is the main factor contributing to its growth.
MasterCard reported impressive financials for the fourth quarter of 2012, backed by expansion in overseas business that beat analysts' expectation. Net income for the quarter jumped to $605 million, or $4.86 per share, from $19 million, or 15 cents per share, a year earlier. Net revenues improved 10% to $1.90 billion, while the company processed 20% more transactions, including 17% higher cross-border volumes.
The volume of cash moved outside the United States in 2012 rose 23.5% on a U.S. dollar basis compared with a 9.7% growth inside the U.S. For the full year, the company earned $2.76 billion, or $21.94 per share, on revenue of $7.39 billion.
Rival Visa (V), the world's biggest payments network, posted a 26% rise in the profit for the same quarter to $1.29 billion as consumer card spending accelerated.
MasterPass is the latest service from MasterCard, which allows users to make purchases from virtually any mobile device. The new service is based on the company's current PayPass Wallet services. MasterPass has the ability to scan a product barcode in the store aisle itself and purchase the item there and then, within the store's app.
This service will help merchants design unique shopping experiences for their customers, enabling customers to check out even more quickly via their smartphones and tablets. The new service from the payment gateway company reflects MasterCard's quest to keep up with the evolving shopping landscape and consumer purchasing channels.
Growing Despite Sovereign Debt Crisis
At a time when most of the companies are pinning their problems on the sovereign debt crisis, MasterCard claims that users in the region, mainly the Netherlands, Germany and Eastern Europe, are increasingly using credit and debit cards for purchases. Gross dollar volume in Europe, or the value of transactions processed by MasterCard, rose 9.3% to $1.1 trillion on a local currency basis last year.
The main reason being, that the company is not just a credit card company but is also in consumer payment, and the global consumer expenditure is increasing 5 percent to 6 percent annually, which will also benefit the company's consumer payment segment.
Dividend And Buyback
The New York-based company's board has authorized an additional $2 billion for the repurchase of Class A shares and also doubled the quarterly dividend for shareholders. MasterCard also revealed a month earlier that about $440 million of buyback is still remaining under its prior $1.5 billion stock-repurchase program. The company has also increased the quarterly dividend of 60 cents on or about May 9 to Class A shareholders, and Class B shareholders of record as of April 9. The last dividend of 30 cents that the company paid was on Feb. 8.
This hike in repurchase and dividend reflects the confidence that the company has in its stock, along with the boost in capital as it inches to final approval of a federal class-action lawsuit reached last year with merchants.
Experts Know Better
Sixty-nine hedge funds tracked by indsidermonkey held long positions in MasterCard at the end of year 2012.
Among all the funds, Tom Russo's Gardner Russo & Gardner had the biggest position in the stock, close to $437 million, constituting about 6% of its total 13F portfolio. Next on the list was Tiger Global Management LLC, managed by Chase Coleman with $327 million in the stock. The investment in MasterCard was 6.1% of its 13F portfolio. Other hedge funds that are bullish on the stock include Andreas Halvorsen's Viking Global, Donald Chiboucis's Columbus Circle Investors and John Armitage's Egerton Capital Limited.
Apart from funds, money managers have also been investing heavily in the stock. JAT Capital Management, managed by John Thaler, had the largest position in MasterCard with an investment of $22 million. Philippe Laffont's Coatue Management initiated a $16 million position during the quarter. The other funds with new positions in the stock are Mark Broach's Manatuck Hill Partners, Jim Chanos's Kynikos, and Seymour Sy Kaufman and Michael Stark's Crosslink Capital.
MasterCard is a good buy for those who are optimistic on the development of mobile payments, international commerce and the diminishing frequency of cash transactions (which we should all expect). The company recently introduced a dollar-denominated MasterCard card in China in alliance with Citibank. The continued expansion by MasterCard in growing Asian economies like India and China will drive future growth. Also, the company's innovation in coming out with merchant and user-friendly methods will help it gain more and more popularity globally. The stock is also a good buy for investors looking for exposure to the financial industry without bearing too much risk.
Additional disclosure: Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.