This Credit Card Giant Is Delivering for Shareholders

A rare event happened a few weeks ago. Credit card giant and payments industry leader MasterCard (NYSE: MA) reported earnings and missed on both the top and bottom lines. The disappointing results stood out in particular because rivals American Express (NYSE: AXP) and Visa (NYSE: V) both reported rather well in recent weeks.

However, the company is still riding one of the strongest growth stories in recent memory and remains completely dedicated to increasing shareholder value. Accordingly, the company currently represents one of the most attractive long-term investments and investors looking to gain exposure to the payments industry should consider buying shares of MasterCard on weakness.

Source: Company Website.

Earnings miss but growth is still intact
In terms of revenue and earnings per share estimates, MasterCard's latest report was a slight disappointment. The company's fourth-quarter revenue of $2.13 billion barely missed the consensus estimate of $2.14 billion. However, the company's fourth-quarter earnings per share of $0.57 missed by a wider mark the $0.60 consensus estimate. 

Despite the disappointment, both reported numbers represent solid growth for the payments juggernaut on a year-over-year basis. Revenue grew an impressive 12% from the comparable quarter in 2012 or 11% on a constant-currency basis. Earnings per share increased even more, rising 16.32% from the same quarter in 2012.

Does this look disappointing?
Despite the earnings disappointment, MasterCard is still expected to be the industry growth leader in 2014. The following is a breakdown of MasterCard's projected growth in 2014 compared to rivals American Express and Visa: 

Company Revenue Growth 2014 EPS Growth 2014
American Express 5.6% 11%
MasterCard 12% 17.6%
Visa 9.8% 17%
*Visa fiscal year ends in September

MasterCard is projected to lead its two main competitors with regard to both revenue and EPS growth in 2014. However, all three companies are projected to grow very well and this indicates just how strong the global growth story is for the major payments industry leaders.

MasterCard remains committed to shareholders
As if the company's solid growth wasn't enough, management at MasterCard has demonstrated numerous times over the years it is dedicated to increasing shareholder value. In many ways, the company has executed better than its main rival Visa as of late.

The company's recent announcement that it was increasing its dividend by a staggering 83% is the first example. Not only is the increase substantial, it follows a previous dividend increase of 100% which was announced just in February of last year. Also, it represents a much more robust increase compared to Visa's most recent dividend raise of 21% in October.

Also, MasterCard management approved yet another massive stock buyback. The company's recently announced $3.5 billion stock repurchase program will go into effect after the existing $2 billion buyback ends. The best part is that, like the dividend increases, Mastercard's buybacks are now becoming more consistent. It is my assessment that shareholders can continue to expect dividend increases and buybacks at consistent intervals from MasterCard going forward.

CEO Ajay Banga said about the recent efforts to increase value, "Today's actions reflect our ongoing commitment to deliver shareholder value as well as our confidence in the long-term growth and financial performance of our company." 

And finally, management announced late last year that the company would split its shares 10-for-1, increasing the total shares outstanding from 120 million to 1.2 billion.  The split, which took place on January 21, makes the company's stock more accessible to retail investors, especially ones that may have been reluctant to buy a stock trading near the intimidating $1,000 price per share level. On the contrary, Visa's shares have never been split and now trade at almost three times the price per share that MasterCard's shares trade at.

Buy the dip and charge ahead
It is not often MasterCard shares drop significantly after an earnings report. As expected, investors bought the dip and shares have recovered nicely so far. The reason is simple; there is no stopping the world's shift away from cash and toward electronic forms of payment. MasterCard, along with rivals American Express and Visa, are positioned well to capitalize on this ongoing, worldwide consumer trend.

However, with industry-leading growth and a steadfast approach to increasing shareholder value, MasterCard remains my top pick in the payments solutions space and a great long-term buy on current weakness.

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