News

Mastercard Incorporated MA is currently trading below its 50-day simple moving average (SMA), with the stock priced at $443.69 compared with the 50-day SMA of $448.28, representing a downtrend. The 50-day SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

MA 50-Day SMA

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Shares of the company have lost 4.1% in the past three months compared with the Financial Transaction Services industry’s decline of 0.9% and its peers, Visa Inc. V and American Express Company’s AXP decline of 3.2% and rise of 1.4%, respectively. The bearishness is partly due to the ongoing regulatory hurdles faced by Mastercard and signs of weak U.S. consumer spending trends.

3-Month Price Performance

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Moreover, Mastercard seems to be relatively overvalued, trading at a forward 12-month earnings multiple of 28.75X, compared with the industry’s 21.98X. The market might have priced its shares at a premium based on the company's history of robust growth and its business model, overlooking recent legal challenges and dicey prospects for a sustainable top-line growth rate in the future.

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Now, let's address the factors that affected Mastercard in detail.

What’s Weighing on MA Stock?

Mastercard’s business might face some regulatory obstacles, which can negatively impact its future growth rate. Ongoing and potential legal battles, including some lawsuits, could lead to financial liabilities and increased competition.

MA faced a recent setback when along with V, its $30 billion anti-trust settlement was rejected by a federal judge, citing reasons like insufficient relief to merchants. This $30 billion cost would have been incurred by V & MA by reducing their swipe fees by 4 bps and constraining their fees for the upcoming five years to be at the 2023 levels. Given the rejection of this settlement, a future settlement might even be higher, hence negatively impacting the company’s earnings.

The Credit Card Competition Act of 2023 also aims to induce competition in the credit card network, which might impact the margins of Mastercard. Higher competition would also imply lowering margins to survive in the market. However, rising demand for security in cashless transactions and better rewards might result in higher costs. This might impact the bottom line in the future.

Mastercard, being a payments company, is directly impacted by transaction volumes and the overall financial health of a consumer. Per State of the US Consumer published in June 2024, Deloitte report, discretionary spending intentions are weak and consumers continue to build their savings. A decline in consumer spending is expected to lower transaction volumes. This can affect MA’s top line. The impact of inflationary pressures and the high-interest rate environment will be felt more by middle-income Americans.

Earnings Estimates Southbound

MA’s 2024 earnings have witnessed two downward estimate revisions against none in the opposite direction during the past month. The Zacks Consensus Estimate for 2024 earnings has declined 1 cent at the same time. Similarly, the Zacks Consensus Estimate for 2025 witnessed three downward revisions against one in the opposite direction during the past month. The consensus mark declined 2 cents in the past month.

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How is the Long-run Looking for MA?

Mastercard has strategically leveraged acquisitions to expand market reach and enhance product offerings. These partnerships and acquisitions underscore its commitment to innovation and global growth.

The company's revenue trajectory reflects sustained growth, driven by consumer spending and robust card usage worldwide. Strong performance in cross-border volumes and digital initiatives position Mastercard for continued revenue expansion.

Mastercard's service business, bolstered by acquisitions like NuData and Ethoca, has shown significant growth, supported by rising demand for cybersecurity and data analytics solutions. This diversification enhances revenue streams and strengthens customer engagement across segments.

With a strong cash position and consistent cash flow generation, Mastercard remains well-positioned for strategic investments, including share buybacks and dividends. This financial strength supports its growth initiatives and underscores its commitment to enhancing shareholder value.

Final Thoughts: Time for Profit-Taking?

Mastercard has strong long-term prospects due to its partnerships, acquisitions, financial standing and service business. However, it currently faces regulatory risks and a slowdown in consumer spending growth, particularly in discretionary items. Additionally, its valuation is higher compared with the industry’s average. These factors suggest that it might be a good time to sell this Zacks Rank #4 (Sell) stock. Conversely, a recovery in discretionary spending and resolution of legal issues could improve Mastercard’s performance in the long run. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.