Trading at 15 times [x] its forward earnings MasterCard Incorporated (MA) is undervalued and may be a better play than its rival Visa (V) in an economic recovery, the weekly newspaper Barron’s said in a report released Monday.
According to the paper, while Visa’s dominant market position in handling 60% of the world’s card swipes in more than 170 countries worldwide gives it the competitive edge over MasterCard ; MA shares are less expensive and trading only at 15x its earnings, compare to Visa’s which trade currently at about 19x the earnings forecast for 2010. If MA shares, notes Barron’s, begin trading at a forward P/E of 16 (fye 31-Dec-10), its stock could soar above $200.
JPMorgan Chase (JPM) analyst Tien-tsin Huang argues that MasterCard, which provides a variety of services in support of the credit, debit and related payment programs of over 24,000 financial institutions, merits at least a 16x PE multiple of his 2010 forecast of $12.25/ share in cash earnings. Such a re-rating, says Barron’s, seems to have taken place in recent weeks, with MA shares printing the tape at $185 level.
The global dollar volume [GDV] handled by MasterCard in 2008 was approx. $2.5 trillion, an 11.5% increase in U.S. dollar terms and a 10.7% increase in local currency terms over the GDV reported in 2007, yielding the company $4.97 billion in revenue. For 2008, MasterCard reported a loss of $250 mln, or $1.95 a share, after charging off $2.5 billion for the settlement of its long-running antitrust suits by American Express (AXP) and Discover Financial Services (DFS).
“Recovery or no, the payment-processing industry’s year-over-year comparisons will start looking better in the December quarter,” Barron’s said. “The underdog MasterCard should have its day.”
In 2008, MA processed 21.0 billion transactions, an 11.8% increase over the number of transactions processed in 2007.
MasterCard shares closed Friday at $185.87. Visa ended the week at $67.29. Both global solution payment companies will report their quarterly earnings this week ; Visa on Wednesday and MasterCard on Thursday.