Yesterday, card processing giant MasterCard Inc. (MA) announced a multi-year strategic alliance with Intel Corporation (INTC), a multinational semiconductor chip maker, in order to improve the online shopping experience. However, financial and other terms of the collaboration remain undisclosed.
While shopping through internet is pacing up rapidly, MasterCard has decided to collaborate with Intel to enhance a secured payment processing system. Intel’s silicon innovation and chip-based security will enable MasterCard process its payments in a safe and secured manner.
Hence, the companies are mutually operating to increase efficiencies though MasterCard’s PayPass and Intel’s Identification Protection Technology which enables consumers an authentic transaction and hardware-based display protection. This will also result in enhanced security and faster checkout, with the convenience of a simple click or tap.
Enhancing security is important for MasterCard’s card transactions given the competitive pressure against arch rivals, particularly Visa Inc. (V), along with the market demand in the rapidly growing electronic payment industry. The company has achieved the position to consistently maintain availability of its core global processing systems as well.
Estimate Trend Revision
Over the last 30 days, 14 of 24 analysts covering the stock have raised their estimates for the fourth quarter of 2011, while 7 downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the fourth quarter is operating earnings of $3.96 per share, which would be up by 25.2% from the year-ago quarter.
The higher number of upward estimate revisions for the fourth quarter indicates a positive trend in the performance of the stock in the near term. This reflects MasterCard’s robust growth fundamentals that could be offset by the regulatory snags going ahead.
With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 9.59%. This implies that MasterCard has surpassed the Zacks Consensus Estimate by 9.59% over that period.
MasterCard benefits from strong secular demand growth, meaningful international exposure, high barriers, excellent pricing power, risk-free balance sheet and impressive operating leverage. Furthermore, the above-average earnings growth, strong competitive position and leverage to an eventual economic recovery will result in a relative valuation premium.
However, we are concerned about MasterCard’s resilience and ability to raise prices, the detrimental effects of the Consumer Protection Act in the U.S. and scope for increasing cash flow. Hence, the cautious outlook over the long term justifies our Neutral recommendation. Conversely, strong fundamentals warrant a Zacks #2 Rank, reflecting a short-term Buy recommendation.
On Monday, the shares of MasterCard closed at $367.27, down 0.8%, on the New York Stock Exchange.
