Mastercard: Ready to Charge?

12/07/2018 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Mastercard (MA) reported third quarter revenues rose 15% to $3.9 billion with net income charging 33% higher to $1.9 billion and EPS up 36% to $1.82, notes Ingrid Hendershot, money manager, value investing specialist and editor of Hendershot Investments.

Net revenue increased 17% on a currency-neutral basis driven by an increase in switched transactions of 16%, an increase in cross-border volumes of 17% on a local currency basis and a 13% increase in gross dollar volume, on a local currency basis, to $1.5 trillion.

These increases were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes. Broad-based growth was across all geographic regions with solid doubledigit growth across most regions.

Overall, Mastercard is seeing solid global growth although management is watching reduced central bank stimulus, rising interest rates and rising trade tensions. Free cash flow increased 28% to $4.6 billion during the first nine months of the year with the company paying $785 million in dividends and repurchasing $4 billion of its shares.

As of Oct. 25, 2018, Mastercard has $800 million remaining authorized for future share buybacks. Mastercard continues to see a healthy economic environment and believes revenues in 2018 will grow at a high-teen rate with operating expenses growing at a mid-teen rate leading to further profit margin expansion.

Mastercard reached an agreement to settle monetary damages claims in the U.S. merchant class-action litigation, which is an amendment to a 2012 Class Settlement agreement. Mastercard’s share of the financial agreement is an additional $108 million, which was accrued for in the second quarter. Buy.

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