MasterCard, Inc. (MA), is a global leader in electronic payments. It serves as a processor, franchisor, and advisor to about 25,000 financial institutions, in support of their credit, debit, and related payment programs. It licenses its card brands, including MasterCard, MasterCard Electronic, Maestro, and Cirrus, to clients worldwide. MasterCard’s revenue is derived from both transaction volume and dollar volume. This week, I fundamentally analyze MasterCard’s stock. I review MA’s operating segments, look at its key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and calculate the expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2020’s free cash flow of $6,516 million figure, a 10% growth rate of FCF (growth for the next 10 years), 10% discount rate, 5% long term growth rate (growth from 10 year mark to perpetuity), 1006 million shares outstanding, and $12,023 million of long term debt, the DCF analysis yields us an intrinsic value of $189 per share. If we drop the discount rate from 10% to 9%, the intrinsic value comes to $244 per share. Using the current stock price of about $371 per share, and taking into the shares outstanding and future projects of free cash flows, we get the annual expected rate of return to be 0.2% if we hold this security through 2075.
Timestamp
0:00 Introduction
0:37 Business Overview
2:38 Key Ratios Analysis
11:50 Discounted Cash Flow Analysis / Intrinsic Value
13:58 Expected Rate of Return Calculation
15:02 Summary / Conclusion
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References:
MasterCard’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Mastercard Incorporated is an American multinational financial services corporation headquartered in the Mastercard International Global Headquarters in Purchase, New York, United States. The Global Operations Headquarters is located in O’Fallon, Missouri, United States, a municipality of St. Charles County, Missouri.
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