Susquehanna Starts MasterCard (MA) at Positive

September 29, 2009 8:31 AM EDT

Susquehanna initiates coverage on MasterCard Incorporated (NYSE: MA) with a Positive rating and $244 price target. The firm likes MasterCard for three primary reasons: operating margin expansion, Europe, and Canada.

The firm commented, "First, regarding operating margins, we believe margins can expand more than 400 basis points from 2Q09 to reach 47.6% in 2010. MA's costs run too high relative to peers - for example, personnel costs of $235K per person are higher than Visa at $207K. The company is working to reduce these and other costs, which, coupled with marginal transaction trends, should lift margins over time. Second, we believe Europe will increase in importance for the next few years for the payment card industry, which is structurally smaller than one might think. The average European still only has 1.2 cards, lower than the U.S. with 3.7, England with 2.5, Canada with 2.3, and Brazil with 1.4. In a gradual sequence in 2010, the European Central Bank plans to phase in a Single European Payment Area (SEPA), which should lead to more issuance of MasterCards. Third, Canada is also undergoing structural changes in 2010, leading to the potential start of meaningful MasterCard issuance. Although proposed legislation intended to increase regulation of the Payment Card Industry remains a concern, we note the "Associations" such as MA do not get paid directly for "interchange," which appears to be the focus of Congress"

Shares of MA closed at $208.14 yesterday, providing 17% upside to the firm's price target.

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• European Central Bank
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