Forget Russian Threats, Buy MasterCard and Visa On Strong Earnings

Judging by the immediate and lackluster trading activity of MasterCard (NYSE: MA  ) shares after the company reported first quarter earnings last week, one could come to the conclusion that the credit card giant failed to impress. This assessment would be wrong, however, as MasterCard performed very well in the quarter, indicating that the strong results posted by larger rival Visa (NYSE: V  ) last month was no fluke.

With a stagnant share price recently, MasterCard's solid earnings report means the company, along with Visa, are attractive buys at current levels and prime long-term growth investments.

Source: MasterCard 

Give them credit
The company's year over year growth was impressive for the most recent quarter. Revenue in the first quarter grew 14% to $2.2 billion, which was driven by a 14% increase in gross dollar volume to $1.0 trillion, a 14% increase in processed transactions to $9.8 billion and a 17% increase in cross-border volumes. 

MasterCard's net income rose an impressive 14% to $870 million while earnings per diluted share grew an even better 18% to $0.73.  These solid growth numbers also beat the average analyst estimates, which called for revenue of $2.14 billion and earnings per diluted share of $0.72. 

When compared to Visa's recently reported second quarter earnings, MasterCard's results are comparable. While Visa reported a revenue increase of only 7% on a year over year basis, net income for the quarter rose 26% and earnings per diluted share rose 31%. 

Charging Ahead
The strong results from the two payment processing leaders serves as confirmation that the large global trend away from cash and toward electronic forms of payment is still strong and shows no signs of stopping anytime soon.

The strong growth projections from MasterCard management in the recent earnings release indicate as much. CFO Martina Hund-Mejean explained, "Looking forward, let me start with our long term performance objectives for the 2013 to 2015 periods. We continue to believe that our business can deliver an 11% to 14% net revenue CAGR and at least 20% EPS CAGR over this period." 

Clouds on the horizon?
However, it is important to note that management at MasterCard noted some possible risk factors in the future as well. The most notable was the uncertainty in the company's Russian market, which represents just over 2% of MasterCard's total revenue. 

CEO Ajay Banga explained the possible long-term impact of the Russian government's recently implemented sanctions, "The sanctions have had a significant impact in that market, not as much from an immediate financial standpoint for MasterCard but rather on the ground where the Russian government is working to implement legislation to change their domestic payments market structure." 

CEO Banga continued, "And we are still assessing all the elements of this new law. I mean there are provisions there that I believe would create serious complications for the way that we can operate in that market." 

Sentiments from Visa management were similar. CEO Charlie Scharf explained that although the situation in Russia is fluid and evolving, it is almost certainly not a positive for Visa and may force the company to completely rethink its business strategy in the area. 

CEO Scharf concluded on a positive note however, "But we are hopeful that there is still opportunity for Visa to participate in the growing in the electronic payments business in Russia. We will not understand the impact on our business in potential future until the laws and regulations are completed. But we remain committed to finding ways to provide our services as long as U.S. government and Russian governments allow." 

Source: Visa Official Facebook. 

Bottom line
There are definitely some geo-political headwinds for MasterCard and Visa emerging in Russia and investors shouldn't ignore them. Fortunately, the overall growth story for MasterCard and Visa is truly global, as much of the world still uses cash a primary form of payment.

It is the truly global nature of both credit card companies' growth that makes Russia a concerning but relatively small risk factor moving forward. On strong earnings results from MasterCard and Visa, investors should consider purchasing shares of either company for global long-term growth in the payments industry.

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