MasterCard Inc (MA) Valuation

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Company Profile (obtained from Google Finance): MasterCard Incorporated (MasterCard) is a global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of over 24,000 financial institutions and other entities that are its customers. Through its three-tiered business model as franchisor, processor and advisor, the Company develops and markets payment solutions, process payment transactions, and provides support services to its customers and, depending upon the service, to merchants and other clients. It manages a family of payment card brands, including MasterCard, MasterCard Electronic, Maestro and Cirrus, which it license to its customers. The Company conducts its business principally through MasterCard Incorporated’s principal operating subsidiary, MasterCard International Incorporated (MasterCard International). In December 2008, it acquired Orbiscom Ltd., a payments solutions software provider for financial institutions.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 4/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    11/2/2009
• MG Value    $185
• MG Opinion    Overvalued
• Value Based on 3% Growth    $70
• Value Based on 0% Growth    $41
• Market Implied Growth Rate    18.96%
• Net Current Asset Value (NCAV)    $2.87
• PEmg    46.41
• Current Ratio    1.57
• PB Ratio    10.83

Key Data:

Balance Sheet – 6/30/2009

• Current Assets    $4,690,200,000
• Current Liabilities    $2,981,610,000
• Total Debt    $20,560,000
• Total Assets    $6,983,930,000
• Intangible Assets    $397,350,000
• Goodwill    $300,360,000
• Total Liabilities    $4,317,660,000
• Outstanding Shares    129,640,000

Earnings Per Share – Diluted

• 2009 (estimate)    $10.62
• 2008    -$1.95
• 2007    $8.00
• 2006    $0.37
• 2005    $1.98
• 2004    $1.76
• 2003    -$3.91
• 2002    $1.35
• 2001    $1.98
• 2000    $1.65

Earnings Per Share – Modern Graham

• 2009 (estimate)    $4.80
• 2008    $1.94
• 2007    $3.14
• 2006    $0.57
• 2005    $0.66
• 2004    $0.19

Valuation History:

• 11/2/09 – Value $185, Actual Price $222.67, Overvalued & Enterprising