(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of MA.)
MasterCard Inc.'s (MA) stock may continue its monster rise. Shares of the payment processor are up by almost 135% over the past three years. That's almost triple the S&P 500 rise of 50%. Still, analysts see shares of the fintech giant moving 8% higher as the it continues to be a dominant player in the e-commerce ecosystem.
The analysts aren't the only ones that are bullish on the stock. Options traders are also betting the stock rises by more than 5% by the beginning of next year. Technical charts point in that direction as well.
Analysts see the stock rising to an average price target of $228. That’s an increase of 8% from the stock’s closing price of roughly $211 on September 6, 2018. The average price target is up by more than 36% since the beginning of 2018, when it was $167.
The bullish sentiment among analysts comes on the heels of strong earnings growth. Earnings in 2018 are forecast to grow by more than 40% to $6.43 versus last year. That is up from prior estimates of $5.39 at the beginning of January. Revenue estimates have soared as well and are forecast to grow by 20% to $14.9 billion, up from forecasts in January calling for $14.0 billion.
Estimates for 2019 are rosy as well. Earnings are forecast to climb to $7.49, up more than 19% from prior estimates of $6.28. Revenue estimates rise by 7% as well to $16.9 billion from previous forecast of $15.6 billion.
Options traders are betting shares rise too. The number of bets on the stock rising outweighs the bets anticipating a fall. There are almost 3,600 open call contracts at the $210 strike price, more than 5 times the number of open puts. With the calls trading at roughly $13 per contract, the stock would need to rise to $223 per share for the calls to earn the buyer a profit. It is not a small wager either, with the open calls worth about $5 million.
The technical chart is also bullish, with the stock in a solid uptrend, since the beginning of 2018. It suggests that the stock continues to rise if it stays within that uptrend.
If MasterCard continues to deliver strong earnings and revenue growth that beats estimates, investors will find plenty of reasons to continue to be bullish. For now, it would seem the stock has everything working for it.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.