How Should You Play Mastercard (MA) Stock Post Q2 Earnings?

Mastercard Incorporated MA reported strong second-quarter 2024 results on Jul 31. Shares of the payments technology company rose 1.8% since it reported its results, reflecting investor optimism about the reaffirmed 2024 net revenues guidance and continued growth in cross-border volumes despite expectations of a slowdown in consumer spending growth.Before addressing the critical question of how investors should strategically position themselves regarding the stock, let’s first review the second-quarter results.Key Takeaways From Q2 EarningsImpressive Top-and-Bottom-Line Numbers: MA reported earnings per share of $3.59 per share, which outpaced the Zacks Consensus Estimate by 2.3% and increased 24.2% year over year. Net revenues of $7 billion improved 11% year over year in the second quarter and beat the consensus mark by 1.7%. The outperformance can be attributed mainly to resilient consumer spending, better cross-border volumes, as well as growth in value-added services.Cross-border & Transaction Volumes Rise: Mastercard’s gross dollar volume grew 9% year over year on a local currency basis to $2.4 trillion. On a local currency basis, the cross-border volume climbed 17% year over year in the second quarter.Looking ahead, Mastercard anticipates that spending will remain strong, supported by consumer spending trends and ongoing digital payment adoption. On the contrary, MA’s rival, Visa Inc. V, highlighted that the lower-spend consumer category is cutting back on spending, which might impact transaction volumes in the future.Value-Added Services: In the second quarter of 2024, Mastercard's value-added services demonstrated impressive performance, with revenues increasing 19% year over year. This growth was driven by heightened demand for the company's consulting, data analytics, fraud detection, and security solutions. As businesses and consumers increasingly prioritize data security and efficiency, MA expects demand to continue its upward trajectory in the future.Improved Guidance: Mastercard now expects its net revenues to witness low double-digit growth year over year in 2024, up from the previous guidance of low-end low-double-digit growth. This enhanced guidance underscores Mastercard’s confidence in its strategic initiatives and its ability to navigate the economic landscape effectively.Assessing MA’s PotentialAs economies push for further digitization, global cashless payment volumes are bound to increase, enabling MA to push through any challenges in the future. Strategic partnerships and acquisitions and continued innovation in new payment flows are expected to act as a moat for the company. Moreover, its value-added services segment now accounts for 37% of its total revenues, helping the company partially offset any weakening in transaction volumes due to slower spending growth.Mastercard, being a highly profitable company, keeps boosting its shareholder value, reflecting operating strength. It bought back $4.6 billion of shares and an extra $820 million through Jul 26, 2024.  It had leftover authorized funds of $8.7 billion under its share repurchase program as of Jul 26.However, it might encounter some regulatory hurdles, which can affect its growth in the short run. Potential and current legal battles could lead to financial liabilities and increased competition.The Credit Card Competition Act of 2023, which is maneuvered to introduce more competition into the credit card network market and reduce costs for merchants, may affect MA’s growth rate. Visa is also the target of the bill, where congress intends to curb the duopoly these two companies are enjoying now (outside the Eastern Hemisphere, where UnionPay dominates).Estimate RevisionsThe Zacks Consensus Estimate for Mastercard’s 2024 and 2025 EPS implies a 16.5% and 15.9% uptick, respectively, on a year-over-year basis. However, the company is witnessing mixed estimate revisions for the current year and the next year. The consensus mark for 2024 and 2025 revenues suggests an 11.1% and 12% increase, respectively.Image Source: Zacks Investment ResearchPrice Performance & ValuationMastercard stock has gained 6.8% in the year-to-date period, outperforming the industry’s gain of 2.7% and underperforming the S&P 500 Index’s rally of 11.7%. In comparison, its peers like Visa and Capital One Financial Corporation COF have lost 0.2% and risen 2.5%, respectively, during the same time frame.YTD Price PerformanceImage Source: Zacks Investment ResearchFrom the valuation perspective, Mastercard is trading relatively expensive. Going by its price/earnings ratio, the company is trading at a forward earnings multiple of 29.1X, higher than the industry average of 21.6X. This makes MA less appealing compared to other investment opportunities for investors looking for value investments.Image Source: Zacks Investment ResearchFinal Thoughts: A Steady HoldMastercard’s strong market position, stability and promising growth prospects make it a compelling stock to retain in the portfolio. Growth in cashless payments, which is likely to support its expanding network, shareholder-friendly moves, and innovation in payments, make this Zacks Rank #3 (Hold) company a worthy keep for existing shareholders. Keeping an eye on consumer spending trends is crucial, as they are indicative of the economy's health and can significantly impact MA’s transaction volumes. However, new investors may want to wait for a better entry point, given the stock’s high valuation and regulatory challengesYou can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Top 3 Hydrogen StocksDemand for clean hydrogen energy is projected to reach $500 billion by 2030 and grow 5-FOLD by 2050. Want in? Zacks has targeted 3 diversified titans that could lead the way to becoming hydrogen powerhouses.One has crushed the market over the past 25 years – up +2,400% to +380%.Another already has capital commitments of $15 billion for low carbon hydrogen products through 2027 alone.Our third pick soared to 52-week highs in Q4 2023 and has raised its dividend every year for over a decade.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Mastercard Incorporated (MA): Free Stock Analysis Report Visa Inc. (V): Free Stock Analysis Report Capital One Financial Corporation (COF): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks