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Stock Analysis & Ideas

Mastercard Stock: Consumer Resilience Should Inspire Investor Confidence

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There’s no denying that shoppers in the U.S. are under pressure due to persistently high inflation and elevated interest rates. Nonetheless, Mastercard is able to deliver outstanding financial results and demonstrate that the American consumer is surprisingly strong in 2022.

Mastercard (MA) has faced a number of challenges in 2022. It certainly hasn’t been easy to conduct business as a fintech company in a shaky U.S. economy. Some people worry that the country is already in a recession or is about to have one. Nevertheless, Mastercard has managed to post impressive financial results, indicating that Americans are busy shopping and spending despite the precarious economic conditions. I am bullish on Mastercard stock.

Mastercard is a payment processing company that offers credit and debit cards, among other financial services. Just consider the headwinds for a payment processing company in 2022.

For one thing, the recession threat might cause shoppers to think twice about making purchases now since they may have to save money for an uncertain future. Then, of course, there’s persistently elevated inflation. It’s getting tougher for people to buy products and services when the prices are skyrocketing.

On top of all that, the Federal Reserve has raised interest rates multiple times this year. This means higher interest payments when shoppers borrow money to make purchases – a deterrent to buying activity.

Thus, it’s understandable if investors are nervous about buying Mastercard stock since so many factors could crimp consumer spending. Yet, a glance at the data will show that Mastercard, and the American consumer, are stronger and more confident than you might have thought.

Americans are Still Traveling and Spending

Maybe it’s because the U.S. unemployment rate is low, at just 3.6%. It could also be because Americans are confident that any recession the nation will have will probably be mild and fairly brief. Whatever the reasons might be, current economic conditions apparently aren’t stopping people in the U.S. from making purchases and even taking trips across borders.

In a recent interview, CFO Sachin Mehra didn’t seem worried that Mastercard’s business model would be negatively impacted by a slowdown in consumer spending. Indeed, Mehra sounded highly optimistic about Mastercard’s future.

The CFO was realistic, though, as Mehra acknowledged concerns about inflation, higher interest rates, and “geopolitical uncertainty”. On the other hand, Mehra pointed out several factors that support consumer spending, including “high levels of consumer savings, very low unemployment rates, and rising wage levels.”

Those are fair points, and it’s possible that the U.S. consumer is still spending and traveling abroad despite the nation’s financial challenges. As evidence of this, Mehra observed that cross-border travel in 2022’s second quarter reached 118% of 2019 levels, which indirectly suggests that travel spending is returning to pre-COVID-19 levels.

Mehra also offered a confidence booster to Mastercard’s investors as the CFO noted that the company is hiring workers. “We’re growing our business… And growth basically means we’re investing in new areas and building new capabilities… The talent market is hot. We’re out there hiring on a regular basis at a fairly healthy clip,” Mehra explained.

Mastercard’s Earnings Results Show That People are Still Spending

It’s a great sign that Mastercard is hiring workers instead of implementing mass layoffs or a hiring freeze. At the end of the day, though, investors want to see strong financial results. Thankfully, there’s hard evidence that Mastercard is beating expectations on the fiscal front while also showing that the U.S. consumer is still spending and shopping.

The company’s second-quarter 2022 results practically speak for themselves. Mastercard’s $5.5 billion in net revenue marked a 21% year-over-year increase on a reported GAAP basis. That result also exceeded the $5.3 billion analysts expected for the quarter. Meanwhile, Mastercard reported EPS of $2.56, beating the $2.36 per share that analysts had modeled. This represents a 31.3% year-over-year improvement.

Mehra already gave you an eye-opening cross-border travel statistic, and here’s another one from a Mastercard executive. CEO Michael Miebach stated that Mastercard’s “cross-border volumes grew 58% versus a year ago.” So, once again, people are traveling and are not afraid to spend domestically and abroad.

Given all of the great quarterly data points, Miebach has certainly earned the right to take an optimistic stance regarding Mastercard’s prospects. After all, as the CEO pointed out, Mastercard has “a well-diversified business model and the demonstrated ability to deliver strong operating margins through up and down cycles.”

Wall Street’s Take on MA Stock

Turning to Wall Street, MA has a Strong Buy consensus rating based on 20 Buys and one Sell assigned in the past three months. The average  Mastercard price target is $414.48, implying 18.8% upside potential.

Mastercard Stock Can Move Higher as Long as Consumers Spend

When the consumer is strong, payment processors like Mastercard can thrive. Sure, there are issues like inflation and high-interest rates to consider. Nevertheless, the data shows that Americans are still traveling and shopping, and that’s positive for Mastercard and its stakeholders.

Therefore, you don’t have to let the current economic conditions dissuade you from investing in Mastercard stock. As the company’s results have shown, consumer resilience can be the key that unlocks profits for Mastercard and for the company’s long-term investors.

Disclosure

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