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How Mastercard Beat Earnings, Revenue Estimates in 3Q17

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Part 7
How Mastercard Beat Earnings, Revenue Estimates in 3Q17 PART 7 OF 8

Understanding Mastercard’s Higher Valuations

Premium valuations

Mastercard (MA) has a PB (price-to-book) ratio of 17.24x on a next 12-month (or NTM) basis, which reflects its higher valuations. The average PB ratio on an NTM basis for Mastercard’s competitors is 4.71x. The PB ratios on an NTM basis for its peers (XLF) Visa (V), Discover Financial Services (DFS), and PayPal Holdings (PYPL) are 7.15x, 2.11x, and 4.87x, respectively.

Understanding Mastercard&#8217;s Higher Valuations

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The rise in Mastercard’s cross-border volumes, gross dollar volumes, and switched transactions could be the main reason for its premium valuations. The company managed to report diluted EPS (earnings per share) of $1.34 in 3Q17, compared to $1.08 in 3Q16. That’s a YoY rise of 24%.

Expected rise

Mastercard could see its valuations rise more since it plans to invest in advertising and marketing programs, which it hopes will lead to more awareness. The company’s top management expressed positive views about the company’s fundamentals.

Mastercard is expected to witness a rise in its rebates and incentives in 4Q17 compared to 3Q17. It reported net income of $1.4 billion in 3Q17, compared to $1.2 billion in 3Q16, which reflects a YoY rise of 21%.

On a trailing 12-month (or TTM) basis, Mastercard has a price-to-sales ratio of 13.91x. Its peers (XLF) Visa (V), Discover Financial Services (DFS), and Euronet Worldwide (EEFT) have price-to-sales ratios of 14.35x, 3.40x, and 2.37x, respectively, on a TTM basis.

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