Stock Analysis & Ideas

Mastercard Stock: The Payments Behemoth Has Tech on Its Side

Story Highlights

Mastercard stock hasn’t gone very far over the past two years. As a recession looms, the firm may be in a spot to take market share back from many disruptive fintech innovators.

Shares of credit card firm and financial technology innovator Mastercard (MA) have held their own rather well as the rest of the market sunk lower in the first half. Mastercard has a dominant position in the payments space, and many up-and-coming firms are hungry for some market share. With impressive innovative capabilities and terrific managers who know what’s at stake if the firm grows complacent, Mastercard is one of few blue chips that are truly on their toes. I am bullish on Mastercard stock.

Looking ahead, a recession and rising interest rates will weigh more heavily on many of the credit card kingpin’s smaller-cap rivals. As headwinds move in, Mastercard is one of many firms that will be able to power forward.

It not only has deeper pockets than various disruptive forces in the fintech world that looked to take share from the top payments incumbents, but Mastercard also has a profoundly large network that will allow it to enjoy network effects for decades to come.

Indeed, Mastercard’s payment processing network is difficult to replicate. As new trends such as BNPL (Buy Now Pay Later), cryptocurrencies and blockchain emerge, Mastercard isn’t just praying that it won’t face too much in the way of disruption.

Mastercard: A Fintech Innovator That Can Defend Itself

Mastercard is actively engaged in such next-generation technologies. In fact, Mastercard CEO Michael Mieback is keen on making a splash in the crypto universe. For now, it’s not really clear as to the magnitude of Mastercard’s crypto and blockchain ambitions. They don’t seem nearly as large as the likes of Jack Dorsey’s Block (SQ). In any case, I wouldn’t count Mastercard out of the game while it looks to defend its turf while looking to bring out the best in what fintech has to offer.

At the end of the day, payments, as we know them, will eventually be disrupted in a major way, and Mastercard is eager to develop the technology to disrupt its own business.

Mastercard sees crypto, cybersecurity, and data as three areas where it can innovate, moving forward. The latter opportunity may be Mastercard’s most underestimated growth pillar. Undoubtedly, many firms are beginning to harvest the power of their data. With big-data firms like Snowflake (SNOW) helping empower large enterprise customers, it’s impossible to ignore the value to be had in large data sets.

In prior pieces covering Snowflake, I noted the “time value of data,” a concept that Snowflake CEO Frank Slootman previously coined. With considerable amounts of data being generated daily, Mastercard stands out as one of the firms that can benefit greatly from increased investment in the areas of AI and data analytics.

Indeed, Mastercard’s long-term growth story is exciting. As its smaller rivals become strapped for cash and the market sours on growth, it’s firms like Mastercard that can make the most of a bad situation. It has the balance sheet to ride out tough times and continue reinvesting in innovation at a time when most smaller-cap fintech players feel the pinch of harder credit.

Mastercard’s Second Quarter Was Solid

Mastercard stock finds itself down around 10% from its all-time high of around $400 per share. Indeed, the stock hasn’t gone anywhere for around two years. This share price consolidation in MA stock could set the stage for a considerable upside bounce at some point down the line, perhaps once the market is ready to move on from the looming economic slowdown. For now, a recession isn’t apparent in Mastercard’s strong Q2 results.

Second-quarter per-share earnings came in better than expected at $2.56, above the analyst consensus estimate of $2.36. Revenue growth was also decent, surging 21% year-over-year. With a side of strong guidance, Mastercard seems better equipped than any payments darling to make it through a period of sluggish consumer spending.

With sights set on a revenue CAGR (compound annual growth rate) in the high-teens range, Mastercard may have the tech edge to meet its upbeat targets. Now, Mastercard is not immune from the effects of a prolonged recession. The firm could easily fall flat if a 2023 recession is harsher than expected.

In any case, I view a recession as less meaningful in the grander scheme of things. At the end of the day, Mastercard will be busy investing in technologies to help it gain even more ground over those pesky fintech rivals that were bid up to the sky in 2021, only to come crashing back down in a violent way in the first half of 2022.

Is Mastercard Stock a Buy, Sell, or Hold?

Turning to Wall Street, MA stock comes in as a Strong Buy. Out of 22 analyst ratings, there are 20 Buys, one Hold, and one Sell.

The average Mastercard price target is $414.41, implying upside potential of 15.4%. Analyst price targets range from a low of $298.00 per share to a high of $472.00 per share.

Conclusion: Mastercard Stock Deserves to be Expensive

Mastercard is a great company that will see its tech edge help it make the most of the secular growth to be had in digital payments. While some may be inclined to consider Mastercard as a credit card firm poised to be disrupted, I view it as a firm that’s more than capable of adapting.

At 35.8x trailing earnings, MA stock is not cheap. However, it doesn’t deserve to be cheap, given its wide moat, tech ambitions, and strong network, which, I believe, has a moat surrounding it.


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