Mastercard Stock: Consumer Resilience Should Inspire Investor Confidence
Masterisk card (MY) faced a number of challenges in 2022. It certainly hasn’t been easy doing business as a fintech company in a faltering US economy. Some people worry that the country is already in recession or about to be. However, Mastercard managed to post impressive financial results, indicating that Americans are busy shopping and spending despite the precarious economic conditions. I am bullish on Mastercard stock.
Mastercard is a payment processing company that offers credit and debit cards, among other financial services. Just consider the headwinds for a payment processing business in 2022.
For one, the threat of a recession could make shoppers think twice about shopping now, as they may need to save money for an uncertain future. Then, of course, there is consistently high inflation. It becomes more and more difficult for people to buy products and services when prices skyrocket.
On top of all that, the Federal Reserve has raised interest rates several times this year. This means higher interest payments when buyers borrow money to make purchases – a chilling effect on buying activity.
So, it’s understandable that investors are nervous about buying Mastercard shares, as many factors could dampen consumer spending. Yet a look at the data will show that Mastercard and the American consumer are stronger and more confident than you might think.
Americans are still traveling and spending
This may be because the unemployment rate in the United States is low, at just 3.6%. It could also be because Americans believe that any recession the country experiences is likely to be mild and fairly brief. Whatever the reasons, current economic conditions apparently aren’t stopping Americans from shopping and even traveling across borders.
In a recent interview, Chief Financial Officer Sachin Mehra didn’t seem concerned that Mastercard’s business model would be negatively affected by a slowdown in consumer spending. Indeed, Mehra seemed very optimistic about Mastercard’s future.
The CFO was realistic, however, as Mehra acknowledged concerns over inflation, rising interest rates and “geopolitical uncertainty”. On the other hand, Mehra pointed to several factors that are supporting consumer spending, including “high levels of consumer savings, very low unemployment rates and rising wage levels.”
These are fair points, and it is possible that the American consumer will continue to spend and travel abroad despite the country’s financial difficulties. As evidence of this, Mehra observed that cross-border travel in the second quarter of 2022 reached 118% of 2019 levels, indirectly suggesting that travel spending is returning to pre-COVID-19 levels.
Mehra also offered a confidence boost to Mastercard investors, with the CFO noting that the company was hiring workers. “We’re growing our business…And growth basically means we’re investing in new areas and building new capabilities…The talent market is booming. We are hiring steadily at a fairly healthy pace,” Mehra explained.
Mastercard results show people are still spending
It’s a good sign that Mastercard is hiring workers instead of mass layoffs or a hiring freeze. Ultimately, however, investors want to see strong financial results. Fortunately, there is hard evidence that Mastercard is exceeding budget expectations while showing that the American consumer continues to spend and shop.
The company’s second quarter 2022 results pretty much speak for themselves. Mastercard’s net revenue of $5.5 billion marked a 21% year-over-year increase on a reported GAAP basis. This result also exceeded the $5.3 billion expected by analysts for the quarter. Meanwhile, Mastercard reported EPS of $2.56, beating $2.36 per share that the analysts had modelled. This represents a 31.3% year-over-year improvement.
Mehra has already given you a telling stat about cross-border travel, and here’s another from a Mastercard executive. CEO Michael Miebach said that Mastercard “cross-border volumes increased by 58% compared to a year ago.“So again, people are traveling and not afraid to spend at home and abroad.
Given all the excellent quarterly data, Miebach has certainly earned the right to take an optimistic stance regarding Mastercard’s outlook. After all, as the CEO pointed out, Mastercard has “a well-diversified business model and the demonstrated ability to generate strong operating margins throughout both up and down cycles.”
Wall Street’s view on MA Stock
As far as Wall Street is concerned, MA has a strong buy consensus rating based on 20 buys and one sell assigned over the past three months. Mastercard’s average price target is $414.48, implying an 18.8% upside potential.
Mastercard stock can rise as consumers spend
When the consumer is strong, payment processors like Mastercard can thrive. Of course, there are issues like inflation and high interest rates to consider. Nonetheless, the data shows that Americans are still traveling and shopping, which is positive for Mastercard and its stakeholders.
Therefore, you don’t have to let current economic conditions deter you from investing in Mastercard shares. As the company’s results have shown, consumer resilience may be the key that unlocks profits for Mastercard and for the company’s long-term investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.