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A Look at Mastercard’s Valuations

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Feb. 14 2018, Updated 10:31 a.m. ET

Premium valuations

Mastercard (MA) has a price-to-book ratio of ~19.2x on an NTM (next-12-months) basis. An average of its peers stood at ~4.5x, which implies that MA has premium valuations. 

Among the company’s competitors, Global Payments (GPN), Western Union (WU), and Discover Financial Services (DFS) have price-to-book ratios of ~3.7x, ~7.5x, and ~2.4x, respectively, on an NTM basis.

Mastercard witnessed a substantial rise of 17.0% in 4Q17 on a YoY basis in switched transactions, which could be the main reason for its premium valuations. 

The company made repurchases of ~6.9 million shares in 4Q17 for $1.0 billion. However, during the same period, it has distributed $233.0 million in the form of dividends.

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Price target

Wall Street analysts have given a one-year price estimate of $191.40 for Mastercard. This target implies a rise of ~13.1% from its current price of $169.28. The company has increased its quarterly payouts, which could also be a reason for its higher valuations.

In September 2017, Mastercard declared a quarterly payout of $0.22 per share. The company later increased its quarterly payout. In December 2017, it declared $0.25 per share, which was paid on February 9, 2018. On February 5, 2018, the company declared a quarterly dividend of $0.25 per share, which is expected to be paid in May 2018.

Mastercard’s price-to-book ratio on an LTM (last-12-months) basis stood at ~32.6x. Among its peers (XLF), Discover Financial Services (DFS), Western Union (WU), and Global Payments (GPN) have price-to-book ratios of 2.5x, ~12.8x, and ~4.8x, respectively, on an LTM basis.

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