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On Monday, Jefferies maintained its Buy rating on MasterCard (NYSE: MA) and raised the stock's price target from $540.00 to $580.00. The firm anticipates a modest revenue beat for the payment processor, driven by several factors including cross-border transaction growth, value-added services, and a smaller than expected impact from foreign exchange rates.
The firm's analysis suggests that MasterCard's net revenue growth will be approximately 11.4% year-over-year on a reported basis, or 11.9% on a constant currency basis, which is slightly above Wall Street consensus estimates. The expected growth is attributed to a combination of elements, such as resilient cross-border revenue, which Jefferies projects to grow in line with the second quarter performance, countering the market's estimates of a deceleration.
Moreover, the firm is optimistic about the value-added services (VASS) segment, predicting a 19% year-over-year growth compared to the Street's estimate of 17.5%. This outlook is based on the belief that the Street's estimates do not fully account for the expected performance, given a 100 basis points easier comparison from the previous year.
Jefferies also estimates a third-quarter foreign exchange headwind of 50 basis points for MasterCard, which is less than the 100 to 200 basis points range factored into the company's third-quarter guidance. However, the firm does caution that there is some risk for MasterCard's fourth-quarter revenue guidance to fall below Street expectations. This will largely depend on whether Rebates & Incentives (R&I) can defy typical seasonal patterns.
For the fourth quarter, Jefferies forecasts a net revenue growth of 12% year-over-year on a reported basis, or 11.5% on a constant currency basis, which is approximately one percentage point below the Street's projections. The primary difference lies in the expectations for R&I, with Jefferies modeling a 210 basis point increase year-over-year as a percentage of gross revenue, in contrast to the Street's much more conservative estimate of a 20 basis point increase.
In summary, while Jefferies acknowledges potential risks, the firm's outlook remains positive, expecting MasterCard to achieve revenue growth at the high end of the low-double-digits on a constant currency basis for the fourth quarter, compared to the Street's implied expectation of 12.5%.
In other recent news, Mastercard (NYSE:MA) has been the subject of significant developments. The company has launched a real-time payment service in South Africa, aiming to improve cash flow management for merchants and foster financial inclusion.
This initiative is aligned with the South African Reserve Bank's National Payments System Strategy Vision 2025. The payment giant has also entered into partnerships with Amazon (NASDAQ:AMZN) Payment Services and Safaricom, Kenya's leading telecommunications company, to enhance digital payment acceptance in the Middle East, Africa, and Kenya.
Mastercard has further expanded its portfolio with the acquisition of Recorded Future, a company specializing in threat intelligence, which is expected to contribute to the company's revenue growth and service diversification. Citi has adjusted its stock price target for Mastercard to $566, maintaining a Buy rating, following a comprehensive model update that reflects changes in the adjusted earnings per share forecasts for the fiscal years 2024 to 2026.
Mastercard has also declared a quarterly cash dividend of 66 cents per share. Lastly, Baird has maintained its Outperform rating on Mastercard shares, following the introduction of the First-Party Trust program, which aims to combat first-party fraud and enhance trust in the payment system.
InvestingPro Insights
Jefferies' optimistic outlook on MasterCard is further supported by recent data from InvestingPro. As of the last twelve months ending Q2 2024, MasterCard reported a robust revenue of $26.39 billion, with an impressive 11.87% revenue growth. This aligns closely with Jefferies' projection of 11.4% year-over-year net revenue growth.
The company's strong financial position is reflected in its market capitalization of $464.01 billion and a high P/E ratio of 38.31, indicating investor confidence in its future earnings potential. An InvestingPro Tip highlights that MasterCard is "Trading near its 52-week high," which corroborates the positive sentiment expressed in Jefferies' analysis.
Another relevant InvestingPro Tip notes that MasterCard "Has maintained dividend payments for 19 consecutive years," showcasing the company's financial stability and commitment to shareholder returns. This consistent performance supports Jefferies' Buy rating and increased price target.
For readers seeking a deeper understanding of MasterCard's financial health and market position, InvestingPro offers 8 additional tips, providing a comprehensive view of the company's strengths and potential risks.
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