Yesterday, MasterCard Incorporated (MA) provided a framework, which aimed at the advancement of the electronic payment technology used in the US. The company intends to make payment methods more secure by shifting from the magnetic strips used in debit and credit cards at present to a chip-based technology called EVM.
The EVM technology can be used with any kind of payment device, including cards, mobile phones and e-commerce. MasterCard was involved in the development of the technology and believes that it will increase security and reduce fraudulent transactions. Moreover, the company believes that dynamic authentication will reduce frauds by providing a unique identity to each transaction, which in turn will make duplication difficult.
Consequently, MasterCard is focusing on infrastructure development and is encouraging acquirers to prepare the required infrastructure by April 2013. Additionally, the company plans to offer financial incentives to merchants in order to encourage them to shift to terminals compatible with the EVM technology.
MasterCard believes that the entire industry needs to work together to upgrade the payment system so as to minimize any form of disruption and provide seamless transformation to the new technology.
MasterCard’s rival Visa Inc. (V) also supports the EVM technology and is encouraging merchants to upgrade their technology.
Earnings Review
MasterCard’s third-quarter 2011 operating earnings of $5.63 per share came in drastically ahead of the Zacks Consensus Estimate of $4.81 and $3.94 per share earned in the year-ago quarter. Moreover, net income for the reported quarter stood at $717 million, spiking 38.4% from $518 million in the prior-year quarter.
The Zacks Consensus Estimate for MasterCard’s fourth-quarter 2011 earnings is pegged at $3.91 per share, up about 24% from the year-ago quarter. Eight out of 27 analysts reduced their earnings estimates in the past 30 days, while only one upward revision was witnessed.
For 2011, the company’s earnings are expected to be $18.58 per share, growing about 32% from 2010. Additionally, MasterCard’s 2012 earnings are expected to be about $21.53 per share, up16% year over year. The company is scheduled to release the financial results for its fourth quarter and full year 2011 before the market opens on February 2, 2012.
MasterCard currently carries a Zacks #3 Rank, implying a short-term Hold rating. Furthermore, based on the fundamentals we maintain our long-term Neutral recommendation on the stock.
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