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Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Mastercard fares in the ModernGraham valuation model.

MA Chart

MA data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price$78.31
MG Value$76.92
MG OpinionFairly Valued
Value Based on 3% Growth$28.97
Value Based on 0% Growth$16.98
Market Implied Growth Rate15.35%
Net Current Asset Value (NCAV)$3.51
PEmg39.19
Current Ratio1.82
PB Ratio12.50

Balance Sheet - 12/31/2013

Current Assets$10,950,000,000
Current Liabilities$6,032,000,000
Total Debt$0
Total Assets$14,242,000,000
Intangible Assets$1,794,000,000
Total Liabilities$6,758,000,000
Outstanding Shares1,194,190,000

Earnings Per Share

2013$2.56
2012$2.19
2011$1.49
2010$1.41
2009$1.12
2008-$0.20
2007$0.80
2006$0.04
2005$0.27
2004$0.24

Earnings Per Share - ModernGraham

2013$2.00
2012$1.55
2011$1.12
2010$0.84
2009$0.50
2008$0.21

Dividend History

MA Dividend Chart

MA Dividend data by YCharts

Conclusion:

Mastercard Inc. is suitable for the Enterprising Investor but not the Defensive Investor. In fact, the only requirements of the Defensive Investor that the company satisfies are the market cap level and the earnings growth over the ten year period. That said, the company passes all of the requirements of the Enterprising Investor, and that investor type should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham's valuation of Visa (NYSE:V) and 5 Low PEmg Companies for the Defensive Investor.

From a valuation perspective, the company appears to be fairly valued. The company has shown strong growth, having brought EPSmg (normalized earnings) from $0.50 in 2009 to $2.00 for 2013. This demonstrated level of growth supports the market's implied estimate of 15.35% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Mastercard Inc.? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Mastercard Inc. (NYSE:MA) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of MasterCard Inc. - March 2014