This international payment company continues to grow at a double-digit pace, as credit transactions—and its global reach—rise.
MasterCard Incorporated (MA)
from Hendershot Investments
MasterCard Incorporated (MA) operates the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories.
In 2013, more than 60% of the company’s $8.3 billion in revenues was derived outside of the U.S. The company offers a wide range of payment solutions, including credit, debit, prepaid, digital wallet and commercial programs through a family of well-known brands, including MasterCard, Maestro and Cirrus. With a unique and proprietary global payments network, MasterCard connects close to two billion cardholders with tens of millions of merchants around the world.
With 85% of the world’s transactions still made with cash and checks, there is significant opportunity for further long-term growth for MasterCard as billions of people migrate away from cash to a more efficient and secure global payment network as the digital and physical worlds converge.
MasterCard generates revenues based on the volume of activity on cards that carry its brands and the number of transactions the company processes for customers, as well as other payment-related services. Over the past five years, the firm has generated strong double-digit growth with sales compounding at a 13% annual rate and EPS at a 23% annual rate.
During the first half of 2014, double-digit growth continued with revenues rising 14% to $4.6 billion and EPS charging 16% higher to $1.53. Second quarter results reflected double-digit growth in key metrics, including a 13% increase in gross dollar volume to $1.1 trillion; a 16% increase in cross-border volume; and a 12% increase in processed transactions to 10.6 billion.
MasterCard’s business model is highly profitable with net profit margins expanding from an excellent 29% in 2009 to a superb 37% in 2013. This has translated into high returns on shareholders’ equity which have averaged an outstanding 38% over the same period.
Over the last decade, free cash flow has grown from $266 million to $3.5 billion on a trailing 12-months basis. While the company currently pays a modest dividend, the dividend has been increased significantly in the last four years from $.06 to a current $.44 per share.
Given the low dividend payout ratio, MasterCard has plenty of room to increase the dividend further in the years ahead. MasterCard has also been using its strong cash flows to repurchase significant amounts of its stock including more than $5 billion of stock in the last three years. During the first half of 2014, an additional $2.8 billion of stock was repurchased. The company has $728 million remaining authorized for future share repurchases.
Long-term investors should go shopping with MasterCard, a HIquality company with a strong, global brand, double-digit growth, highly profitable operations and strong cash flows. Buy.
Ingrid R. Hendershot, Hendershot Investments, www.hendershotinvestments.com, 703-361-6130, September 2014