Mastercard should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio, lack of earnings stability over the last ten years, short dividend history, and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns about the company. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $0.84 in 2010 to an estimated $2.42 for 2014. This is very strong and an impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 13.6% over the next 7-10 years. In fact, actual historical growth is about 37.62% per year, so the market has priced in a slight earnings drop to a more sustainable level over the long term. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.
Be sure to check out previous ModernGraham valuations of Mastercard Inc. for greater perspective!
Disclaimer: The author did not hold a position in Mastercard Inc. (MA) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.