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Jefferies Upgrades MasterCard: Positive Growth Projections Amid Market Developments
On Monday, investment firm Jefferies reaffirmed its Buy rating on MasterCard (NYSE: MA) and increased its price target for the stock from $540.00 to $580.00. This optimism stems from anticipated strong revenue performance driven by various factors, including growth in cross-border transactions, expansion in value-added services, and a lesser impact from foreign exchange fluctuations than previously expected.
Analysts at Jefferies predict MasterCard’s net revenue growth will reach around 11.4% year-over-year on a reported basis, or approximately 11.9% when adjusted for constant currency. This forecast slightly exceeds current Wall Street consensus estimates, indicating a robust outlook for the payment processor. The projected growth is primarily attributed to persistent strength in cross-border revenue, which the firm believes will perform consistently with the second quarter results, contradicting market concerns about a slowdown.
Additionally, Jefferies expresses confidence in the value-added services (VASS) segment, estimating a year-over-year growth of 19%, surpassing the Street’s 17.5% estimate. This optimism is predicated on the view that industry projections may not fully account for the expected performance given an easier comparison from the previous year.
Taking a closer look at potential challenges, Jefferies points out a foreign exchange headwind of around 50 basis points for MasterCard in the third quarter, which is lower than the company’s guidance range of 100 to 200 basis points. However, there are cautions regarding the fourth-quarter revenue predictions, where the performance of Rebates & Incentives (R&I) could play a pivotal role in meeting market expectations.
For the upcoming fourth quarter, Jefferies forecasts a net revenue growth rate of 12% year-over-year on a reported basis or 11.5% on a constant currency basis. This estimate comes in roughly one percentage point shy of the Street’s forecasts, primarily due to differing expectations regarding R&I, with Jefferies anticipating a significantly higher growth in R&I as a percentage of gross revenue compared to more conservative estimates from other analysts.
In conclusion, while Jefferies acknowledges certain risks, its overall outlook for MasterCard remains positive, anticipating revenue growth at the higher end of the low double digits on a constant currency basis for the fourth quarter, in contrast to Street expectations of 12.5% growth.
In related developments, MasterCard has launched a real-time payment service in South Africa aimed at enhancing cash flow management for merchants and promoting financial inclusion. This initiative supports the South African Reserve Bank’s National Payments System Strategy Vision 2025.
Moreover, the company has formed significant partnerships with Amazon Payment Services and Safaricom, Kenya’s leading telecommunications provider, to increase digital payment acceptance across the Middle East, Africa, and specifically Kenya.
Additionally, MasterCard has expanded its capabilities by acquiring Recorded Future, a firm specializing in threat intelligence, which is expected to enhance its revenue streams and service offerings. Following a model update reflecting adjustments in earnings forecasts for 2024 to 2026, Citi has raised its price target for MasterCard to $566, also maintaining a Buy rating.
MasterCard has announced a quarterly cash dividend of 66 cents per share, illustrating its commitment to shareholder value. Similarly, Baird has affirmed its Outperform rating on MasterCard shares, particularly in light of the newly launched First-Party Trust program designed to combat first-party fraud and strengthen trust in the payment ecosystem.
InvestingPro Insights
Jefferies’ bullish stance on MasterCard aligns with recent data from InvestingPro. Over the past twelve months ending Q2 2024, MasterCard reported a substantial revenue of $26.39 billion, marking an impressive 11.87% growth, which closely mirrors Jefferies’ forecasts.
The company’s solid financial standing is underscored by its market capitalization of $464.01 billion and a high P/E ratio of 38.31, reflecting investor confidence in its future profitability. An InvestingPro insight indicates that MasterCard is currently “trading near its 52-week high,” reinforcing the positive sentiment from Jefferies’ findings.
Furthermore, another tip from InvestingPro emphasizes that MasterCard has sustained dividend payments for 19 consecutive years, showcasing its financial reliability and commitment to returning value to shareholders. Such consistent performance substantiates Jefferies’ Buy rating and the raised price target.
For those looking to deepen their understanding of MasterCard’s financial health and market dynamics, InvestingPro offers additional insights that explore the company’s strengths and potential risks.
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