Tickers in this Article: MA, V, AXP, BAC, JPM
Credit card provider MasterCard (NYSE:MA) reported third quarter earnings last week to demonstrate that its global growth potential remains far from running out of steam. The share price valuation already discounts much of this growth, but its prospects remain more robust than its archrival. TUTORIAL: Bond & Debt Basics

Third Quarter Recap
Net revenue jumped 14.8% to $1.5 billion as purchase volume improved 12.9% and on higher pricing. Growth was strongest in Latin America as volumes increased 25% and was followed by the APMEA region (Asia Pacific, Middle East, and Africa) increase of 21.6% and Europe, up 12.7%. The U.S. and Canada posted more pedestrian volume growth of around 7%.

Costs increased only 9.4% on higher levels of general, administrative, selling and depreciation expenses, and helped push operating income ahead by 19.4% to $836 million, or a very impressive 55.7% of sales. Lower interest expense and modest income tax expense growth pushed net income up 23.5% to $562 million, or 37.5% of sales. Diluted earnings grew 24% to $4.29 per diluted share.

Analysts currently project full year sales growth of 14% for total sales just north of $6.3 billion and earnings of $17.01 per share for year-over-year growth of more than 20%.

MasterCard is growing briskly and should continue to expand at a rapid clip given overseas consumers in emerging markets are still in the early stages of adopting credit cards as a preferred payment method. Even developed markets are still growing respectably and should continue to do so. (To learn more, see How Credit Cards Built A Plastic Empire)

MasterCard along with its archrival Visa (NYSE:V) make money by charging to authorize and settle transactions between consumers and retailers throughout the world. They also receive royalties from financial institutions, including Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) for the right to use their branded cards. American Express (NYSE:AXP) is also a key rival that owns it own payment network but, unlike MasterCard or Visa, extends credit to consumers. (For related reading, see 10 Reasons To Use Your Credit Card)

Bottom Line
MasterCard and Visa are less exposed to downturns given they don't extend credit. The only thing not to like is their valuations as they both trade at more than 16 times forward earnings. MasterCard arguably has more room to grow given its smaller market share, but the lofty valuation leaves less downside protection should growth prospects not turn out as planned. For example, online or smart phone transactions could continue to steal share, though the latter will also likely depend on the current market leaders.

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