Mastercard’s Record-Breaking Quarter Bodes Well For Rest of Year

Mastercard (NYSE: MA) reported earnings after the market closed on May 2, 2018, and it was a record-breaking quarter for the payment processor:

• Record net revenue of $3.6 billion, up from $2.7 billion (31% increase year-over-year)
• Record net income rose to $1.5 billion, up from $1.1 billion (38% increase YOY)
• Diluted earnings of $1.41 per share, up from $1.00 per share (41% increase YOY)

If you’ll recall from a few weeks ago (and from my earnings reports on Visa (NYSE: V) and PayPal Holdings (Nasdaq: PYPL), Mastercard is part of my “War on Cash” basket with those companies and Square (NYSE: SQ). Similar to last week, shares were boosted slightly again with these results from Mastercard and Square (which I covered here), and the “War on Cash” thesis seems to be strong for at least another quarter.

Mastercard had a quarter similar to Visa, with increases in both gross dollar volume (up 14% to $1.4 trillion) and purchase volume (up 15%). As more people continue to use Mastercard-branded credit and debit cards for payments, and use cash less, Mastercard (and Visa) will continue to benefit from those transactions, even if they have to eventually start reducing the transaction costs associated with the use of their cards.

But we shouldn’t judge a company solely on what they have done in the past. An investment should be considered based on what it looks like the future of the company holds. Mastercard doesn’t predict specific numbers, only providing general ranges for where they see themselves for the entire year. Nevertheless, they did “increase” guidance for the remainder of the year from 2017’s year-end report, expecting a revenue increase in the “low 20’s” and organic growth in the “mid-teens.”

Analysts, on average, are predicting annual revenue of $14.51 billion, and current year earnings of $6.01 per share. Should this prediction come to pass, based on its current P/E of about 51, we can expect a share price of $306, which would be an increase of over 64% from its current price! While I expect that the market will continue to catch up with this stock, I still see a lot of upside with this stock going forward and would not be disappointed if it only grew by half this amount.

The “War on Cash” is real, and is thus far playing out well in this portfolio. I’m excited to continue following the results of Mastercard and other companies in this basket over the next few years.

Until next time…

Disclosure: I have purchased shares of all companies mentioned on behalf of my mother and have no intentions of adding or selling shares over the next 30 days. Please read my full disclosure here.