MasterCard’s [MA] share price has been effectively flat this year. Up just 3.78% in the 12 months to 26 January’s close, the stock has been hampered by underwhelming earnings as the pandemic hurt its bottom line. However, the underperformance in MasterCard’s share price could present an opportunity for investors.
As a payments company, MasterCard could benefit from an economic recovery in 2021, with more people making discretionary purchases after the tightening of household budgets during lockdown. MasterCard’s share price may also benefit from the accelerated shift to online spending.
If MasterCard can show it is on its way to recovery in the upcoming fourth quarter results then it — and the wider fintech and payment services theme — could be worth considering this year.
When is MasterCard reporting Q4 earnings?
Why should investors care about MasterCard’s share price?
Even before the pandemic, the shift from cash to card and digital payments was well underway, propelled by payment companies like MasterCard. By 2025, mobile payments alone are expected to be worth $12,407.5bn, up from $3714.5bn in 2019, according to a June 2020 paper from ReportLinker.
Mobile payments' predicted worth by 2025
This shift is evident in MasterCard’s own survey of 2,000 shoppers in the run-up to the recent holidays. 55% of those polled saying they would do the majority of their seasonal shopping online, with 66% preferring shops that used contactless payment methods.
This trend not only stands to benefit MasterCard’s share price, but other payment companies like Visa [V], PayPal [PYPL] and Square [SQ]. Looking at CMC’s JK Fintech basket, which covers the growing financial and payment sector, Square has gained 24.55% and PayPal 20.80% in the last three months..
Yet MasterCard’s share price has lagged as the pandemic hit earnings last year. In the third quarter, MasterCard’s net income fell 28% compared to the same period last year, with net revenue down 14% — both missing analyst expectations. One reason for the underwhelming results is the travel sector’s woes. With people unable to travel, MasterCard missed higher margin cross-border payments, with fees on cross-border transactions totalling $791m in the third quarter, down 48% from the previous year.
“While we believe that cross-border will ultimately recover, it will take time for people to build their confidence in the safety of travel. We believe that is tied to the broad availability of vaccines and therapeutics, likely towards the latter part of next year,” said MasterCard’s CFO, Sachin Mehra, during an analyst call last year.
"While we believe that cross-border will ultimately recover, it will take time for people to build their confidence in the safety of travel" -Sachin Mehra, MasterCard CFO
Shareholders will be looking for a quarter-on-quarter improvement in MasterCard’s upcoming Q4 call. Wall Street is forecasting earnings per share of $1.53, down from the $1.96 seen in the fourth quarter last year. Revenue is pegged at $4.02bn, an 8.9% drop from the $4.41bn seen last year. Cross-border payments are also likely to continue to drag on earnings.
What do the analysts think of MasterCard’s share price?
Despite lowered expectations for the fourth quarter, Wall Street is optimistic about the longer-term potential of MasterCard’s share price. In January, both Jefferies and Bank of America upgraded their recommendations for the stock to a buy. Jefferies analyst Trevor Williams said that MasterCard had experienced a “rare stretch of underperformance,” which could make it a buy this year, upping his price target from $315 to $415.
“With the rollout of the vaccine underway, we have increasing confidence in an eventual international travel recovery, which we believe will drive the stocks in 2021 as a more normalized earnings stream in 2022 and 2023 becomes discounted by the market," wrote Williams.
Bank of America analyst Jason Kupferberg was similarly optimistic, citing the shift towards digital payments and the possibility of consumers flexing the plastic more heavily on discretionary purchases like travel in the second half of the year. Kupferberg upped his price target from $358 to $400.
Among the analysts tracking the stock on Yahoo Finance, MasterCard’s share price has an average $376.94 target. Hitting this would represent a 15% upside on the current price (as of 26 January’s close). Of the 39 analysts offering recommendations, 14 rate it a strong buy and 20 a buy.
|PE ratio (TTM)||49.18|
|Quarterly revenue growth (YoY)||-14.10%|
MasterCard's share price vitals, Yahoo Finance, 27 January 2021
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