KeyBanc Raises Estimates on MasterCard (MA); Maintains Buy and $350 PT

KeyBanc issued a research note yesterday considering the market reaction to MasterCard's (NYSE: MA) Q2 earnings results, which were released on Thursday of last week. The firm maintains a Buy rating and $350 price target on MasterCard.

While MasterCard did beat the Street's estimates, the stock sold-off on the earnings report. The firm believes the market reaction was negative due to:

• some investors felt the "beat" in the quarter was not large enough; and
  
• others were concerned about slowing growth in the United States.

KeyBanc argues that MasterCard's 25% sales growth was in-line, and also sees the company reporting double-digit growth over the next several quarters, "largely because of the ongoing global shift from paper to plastic, particularly outside the United States."

KeyBanc believes that MasterCard's significant pricing power and expense flexibility should be able to keep its revenue growth steady if volume slows amid an economic downturn. The firm said its FY09 revenue estimate takes into account a continued slowdown in U.S. volume growth.

The firm raised its FY08 EPS estimate from $8.00 to $8.75, versus the consensus of $8.78. Revs for the quarter go from $4.81 billion to $4.89 billion, versus the Street estimate of $4.94 billion. For FY09, EPS move from $10.00 to $11.00, while sales move from $5.43 billion to $5.52 billion. The Street estimates are currently for EPS of $11.09 and sales of $5.62 billion.

KeyBanc notes that MasterCard currently trades at about 21x FY09 EPS estimates, a premium over its peer group average multiple of 16.9x. The firm said this premium is warranted given MasterCard's "unique business model, expanding margins and greater than industry earnings growth (20-30%, compared to an industry average of 10-15%)." Notably, Visa (NYSE: V) trades at a slightly higher multiple versus MasterCard: 25x FY09 EPS. KeyBanc's $350 price target is based on 31.6x consensus FY09 EPS estimates.

Since reporting earnings last week, shares of MasterCard are down nearly 15% from around $270. The stock is bucking this downtrend today, however: shares gapped slightly higher this morning and appear to be holding these gains. Shares of MasterCard most recently traded at $232.59, up $1.67, or about 0.7% from yesterday's close.

MasterCard Incorporated, together with its subsidiaries, provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers cheque programs.

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