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What’s Mastercard’s Valuation ahead of Third-Quarter Earnings?

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Price-to-earnings multiple

At current market prices, Mastercard (MA) trades at a premium valuation to most of its peers with the exception of PayPal Holdings (PYPL). The TTM (trailing-12-month) PE ratio for Mastercard is 36.26x, which is lower than PayPal’s multiple of 37.47x. Mastercard’s PE ratio is much higher than Visa’s (V) multiple of 32.78x and Global Payments’ (GPN) multiple of 25.18x.

Based on Wall Street’s earnings forecast for the next 12 months (or NTM), Mastercard’s PE ratio is pegged at 27.95x. The company’s peers such as Visa, PayPal, and Global Payments have forward PE multiples of 26.06x, 30.49x, and 19.95x, respectively.

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Mastercard’s premium valuation seems justified primarily due to the strong worldwide growth projections for digital payments. Moreover, the company’s earnings growth projection for 2018 is the highest in the space. Wall Street’s fiscal 2018 earnings growth projections for Mastercard, Visa, PayPal, and Global Payments are 40%, 31.9%, 23.2%, and 28.2%, respectively.

Analysts’ recommendation

Analysts are bullish about Mastercard and project mid-double-digit growth in its stock price. The company’s consistent strong quarterly performances along with its encouraging outlook for 2018 have instilled confidence among analysts as reflected in their ratings.

The majority of analysts recommended a “strong buy” or “buy” on Mastercard. These recommendations represented ~90% of the 42 analysts covering the stock. Meanwhile, 7% of analysts recommended a “hold,” and 3% recommended a “sell” on the stock. Analysts have given Mastercard a target price of $234.22, which is a ~15% surge from the current level of $204.50.

The one-year target prices for Visa, PayPal, and Global Payments represent upside of 17.1%, 16.3%, and 16.6% from the respective companies’ current market prices.

Mastercard constitutes ~7.1% of the Invesco DWA Financial Momentum ETF (PFI).

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