Payment processing juggernaut Mastercard Incorporated MA has announced a new share buyback program of $12 billion, which will become effective after completing its previously announced $11 billion program. It had around $3.9 billion left from the current program as of Dec. 13, 2024.

Mastercard also announced a 15.2% increase in its quarterly cash dividend to 76 cents per share from 66 cents paid out earlier. The increased amount will be paid out on Feb. 7, 2025, to its shareholders on record as of Jan. 9, 2025. However, based on the closing price of $531.01 per share on Dec. 17, the stock has a dividend yield of 0.57%, lower than the industry average of 0.66%. This leaves more room for future dividend growth.

If we look back at the last reported quarter, MA bought back 6.3 million shares for $2.9 billion. Also, between Oct. 1 and Oct. 28, it bought back another 2 million shares for $983 million.Additionally, it paid out dividends worth $611 million in the third quarter. Its strong financial position enables it to take shareholder-friendly moves.

In the trailing 12-month period, its free cash flow grew 18.1% to $12.86 billion. Mastercard exited the third quarter with cash and cash equivalents of $11.1 billion, which climbed nearly 29% from the 2023-end level. The figure is way higher than the short-term debt of $750 million. Given its expanding operations, its financial strength is likely to grow more in the future.

MA’s Growth Drivers

Mastercard’s diversified business model, both in terms of operations and geography, will continue to benefit the company. It strategically leverages acquisitions and partnerships to expand market reach and enhance product offerings. The growing demand for its service offerings, like cybersecurity and data analytics, provides revenue diversification benefits. Its revenues are consistently rising due to increased consumer spending, card usage and cross-border transactions.

Shares of the company have jumped 24.5% so far this year, outperforming the industry average of 23.7%.

MA YTD Price Performance

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MA’s Headwinds

Its headwinds include rising operating costs, legal battles and regulatory changes that could create uncertainties for the company.Mastercard’s adjusted operating expenses grew 10.7% in 2022, 10.5% in 2023 and 9.9% in the first nine months of 2024. It is working to resolve a collective lawsuit in the U.K. related to its card fees, reaching an agreement in principle earlier this month.

The Credit Card Competition Act of 2023 could pose further challenges, significantly altering the competitive landscape for both companies. This proposed legislation aims to promote competition in the credit card market and reduce costs for merchants, potentially impacting the duopoly Mastercard and another payment giant Visa currently enjoys, especially in the U.S. market.

Also, its valuation remains stretched at the current level. It has a forward 12-month P/E of 32.76X, higher than its five-year median of 31.74X and the industry’s average of 25.55X.

Given these factors, while current stockholders can benefit from the company’s long-term growth potential, new investors should wait for a better entry point. The outlook is currently neutral and with a Zacks Rank #3 (Hold), it's not an ideal time to buy Mastercard stocks. Investors should closely monitor the developments in the legal and regulatory landscapes before making any decisions.

Key Picks

Some better-ranked stocks in the broader Business Services space are Coinbase Global, Inc. COIN, Cantaloupe, Inc. CTLP and DLocalLimited DLO. While Coinbase currently sports a Zacks Rank #1 (Strong Buy), Cantaloupe and DLocal carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Coinbase’s current-year earnings of $5.39 per share indicates a massive jump from the year-ago level of 37 cents. COIN beat earnings estimates in three of the trailing four quarters and met once, with the average surprise being 341.4%. The consensus estimate for current-year revenues is pegged at $5.6 billion, implying 80.6% year-over-year growth.

The Zacks Consensus Estimate for Cantaloupe’s current-year earnings indicates a 113.3% year-over-year surge. CTLP beat earnings estimates in two of the trailing four quarters, met once and missed on the other occasion, with the average surprise being 20%. The consensus estimate for current-year revenues implies 15.9% year-over-year growth.

The consensus estimate for DLocal’s current-year earnings is pegged at 47 cents per share, which witnessed three upward revisions in the past 60 days against none in the opposite direction. It beat earnings estimates in two of the trailing four quarters and missed twice, with the average surprise being 22.6%. The consensus estimate for DLO’s current-year revenues is pegged at $745 million, implying 14.6% year-over-year growth.

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