Let MasterCard (MA) Master Your Portfolio - Barron's
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Alluding to the famous Seinfeld skit for a moment: "Why do they call it Ovaltine? The mug is round; the jar is round... they should call it Roundtine. (pauses) That's gold, Jerry! Gold!" - Kenny Bania
According to Barron's, MasterCard (NYSE: MA) should change its name to PlasticCard, because it -- as well as the famous chocolate drink routine -- is also gold.
The second largest card-payment processor behind rival Visa (NYSE: V), both have seen tremendous upside from the globe embracing the warm comfort of debit and credit cards. Both stocks are up 40 percent over the last 12 months, though both have recently fallen after hitting 52-week highs on May 1st.
Compared with Visa, MasterCard is a better value: shares are going for 15.2 times 2013 earnings expectations, compared with 16.2 times at Visa. MasterCard's balance sheet is debt free and its return on equity (ROE) is double that of Visa at 35 percent.
Though some might see MasterCard as expensive relative to other financials, the company doesn't take credit risk with the lions share of electronic transactions, even in more mature markets. MasterCard's brand is carried on 30 percent of cards globally, leading to a majority of its top-line coming from overseas operations, making it a very international brand not tied to one or two large markets. This insulates the company from regulation changes somewhat -- in particular those coming out of the U.S.
One analyst from Brown Advisory FVF said the threat of U.S. regulation might be overblown. Those following Visa and MasterCard might be thinking of the Durbin Amendment to Dodd-Frank, which provides for the elimination of hidden debt-card interchange fees. That move would affect MasterCard much less than Visa, with MasterCard deriving most of its income from credit cards.
In addition, the move may actually benefit MasterCard; the company provides for banks with more than $10 billion in assets to have more than one payment processing provider.
Some risks include: other, unforeseen regulatory actions as well as a slowdown in the economic recovery which would cause less purchases (though we think consumers might rely more on credit cards to get them through tough periods, particularly when jobs are scarce).
Finally, Barron's didn't address this specifically, but Visa, MasterCard, and others, are teaming up with banks and retailers on rolling-out more RFID payment capability, or the ability to pay directly from a mobile device or by simply inputting a password. The enhanced convenience, led by eBay's (Nasdaq: EBAY) PayPal, will surely lead to more purchases being made, ending up as more change in investors wallets.
MasterCard shares are looking like they will start higher Friday.
According to Barron's, MasterCard (NYSE: MA) should change its name to PlasticCard, because it -- as well as the famous chocolate drink routine -- is also gold.
The second largest card-payment processor behind rival Visa (NYSE: V), both have seen tremendous upside from the globe embracing the warm comfort of debit and credit cards. Both stocks are up 40 percent over the last 12 months, though both have recently fallen after hitting 52-week highs on May 1st.
Compared with Visa, MasterCard is a better value: shares are going for 15.2 times 2013 earnings expectations, compared with 16.2 times at Visa. MasterCard's balance sheet is debt free and its return on equity (ROE) is double that of Visa at 35 percent.
Though some might see MasterCard as expensive relative to other financials, the company doesn't take credit risk with the lions share of electronic transactions, even in more mature markets. MasterCard's brand is carried on 30 percent of cards globally, leading to a majority of its top-line coming from overseas operations, making it a very international brand not tied to one or two large markets. This insulates the company from regulation changes somewhat -- in particular those coming out of the U.S.
One analyst from Brown Advisory FVF said the threat of U.S. regulation might be overblown. Those following Visa and MasterCard might be thinking of the Durbin Amendment to Dodd-Frank, which provides for the elimination of hidden debt-card interchange fees. That move would affect MasterCard much less than Visa, with MasterCard deriving most of its income from credit cards.
In addition, the move may actually benefit MasterCard; the company provides for banks with more than $10 billion in assets to have more than one payment processing provider.
Some risks include: other, unforeseen regulatory actions as well as a slowdown in the economic recovery which would cause less purchases (though we think consumers might rely more on credit cards to get them through tough periods, particularly when jobs are scarce).
Finally, Barron's didn't address this specifically, but Visa, MasterCard, and others, are teaming up with banks and retailers on rolling-out more RFID payment capability, or the ability to pay directly from a mobile device or by simply inputting a password. The enhanced convenience, led by eBay's (Nasdaq: EBAY) PayPal, will surely lead to more purchases being made, ending up as more change in investors wallets.
MasterCard shares are looking like they will start higher Friday.
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