Will Mastercard See All-Time Highs?

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With shares of Mastercard (NYSE:MA) trading around $525, is MA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Lets analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Mastercardis a global payments and technology company that connects consumers, financial institutions, merchants, governments, and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks. The company offers a range of payment solutions that enable its customers and partners to develop and implement credit, debit, prepaid and related payment programs for their customers. Its customers and partners include financial institutions and other entities that act as issuers and acquirers, merchants, Government entities, telecommunications companies and other businesses. As consumers and businesses continue to migrate to more efficient transaction systems, Mastercard stands to see increased profits well into the future.

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T = Technicals on the Stock Chart are Strong

Mastercard stock has seen a consistent uptrend since reach lows during the Financial Crisis. The stock has made new all-time highs just about every year and looks to be headed there this year as well. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Mastercard is trading above its rising key averages which signal neutral to bullish price action in the near-term.

MA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Mastercard options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

MasterCard Options

26.84%

90%

84%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Mastercard’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Mastercard look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

20.60%

9.59%

16.60%

24.94%

Revenue Growth (Y-O-Y)

9.66%

5.50%

9.18%

17.12%

Earnings Reaction

0.46%

3.46%

-2.14%

-0.97%

Mastercard has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been pleased with Mastercard’s recent earnings announcements.

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P = Poor Relative Performance Versus Peers and Sector

How has Mastercard stock done relative to its peers, Visa (NYSE:V), American Express (NYSE:AXP), Discover (NYSE:DFS), and sector?

Mastercard

Visa

American Express

Discover

Sector

Year-to-Date Return

6.88%

7.14%

13.38%

11.18%

7.94%

MasterCard has been a relative underperformer, year-to-date.

Conclusion

Mastercard, through its products and services, is a globalfacilitatorof transactions that is working at helping consumers and businesses operate as efficiently as possible. The stock has seen an amazing run over the last several years and is now consolidating near all-time high prices. Earnings and revenue growth figures have been steadily growing which has satisfied investors, in recent time. Relative to its peers and sector, Mastercard has underperformed year-to-date. WAIT AND SEE what Mastercard does in the coming quarter.

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