Recently, MasterCard (MA) announced that its Board of Directors has authorized the repurchase of its Class A common stock worth approximately $1.5 billion. The new share repurchase program will be effective after the company is done with its earlier $2 billion share repurchase authorization that was approved by the Board on September 14, 2010 and April 12, 2011 respectively.
Until the end of April, MasterCard bought almost 304,600 shares for approximately $106 million since the fourth quarter of 2011. As of May 31, the company had $270 million remaining under its previous share repurchase authorization.
The initiative taken by the company to proactively return value to its investors accrues from its ability to generate strong cash flow. As on March 31, 2012, MasterCard's net operating cash flow grew 20.2% year over year to $427 million, its cash and cash equivalents stands at $3.68 billion with no long term debt obligation. MasterCard's trailing 12-month return on investment (ROI) of 31.78% stands significantly ahead of the sector average of 1.20%.
The shares of the company currently trade at $419.98 (as on June 6, 2012) exhibiting an increase of 11.78% from the previous day's closing price. The spurt in the company's share prices can be attributed to the recent announcements made by the company as well as favorable market conditions.
The latest announcement of paying a cash dividend of 30 cents per share to holders of record of its Class A common stock and Class B common stock on August 9 further boosts investors' confidence on the stock.
However, it is to be noted that other peers in the industry are almost equally proactive in this respect. During the first quarter 2012, MasterCard's close competitor American Express Co. (AXP), also known as AmEx, announced that its Board of Directors sanctioned the repurchase of almost 150 million shares from time to time.
This came as a replacement for the company's prior 200 million share buyback program that had about 38 million shares remaining for repurchase. AmEx also projects to buyback shares worth $4 billion in 2012 followed by another $1 billion in 2013.
MasterCard retains a quantitative Zacks #3 Rank, which translates into a short-term Hold rating. Also, we maintain a long term Neutral recommendation on the stock.