TSC Ratings' Updates: MasterCard

We've downgraded MasterCard(MA Quote) from hold to sell, driven by its deteriorating net income, disappointing return on equity and decline in the stock price during the past year.

Net income decreased by 161.6% compared with the same quarter a year ago, to -$193.58 million, significantly underperforming the IT services industry and the S&P 500. Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior, a signal of major weakness within the corporation. MasterCard's ROE significantly trails both the industry average and the S&P 500.

MasterCard has experienced a steep decline in earnings per share of 164.5% in the most recent quarter compared with the same quarter a year ago. This company has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, it increased its bottom line by earning $7.99 vs. 36 cents in the prior year. This year, the market expects further improvement in earnings to $8.84. MasterCard's gross profit margin of 43.1% is strong, having increased from the same quarter last year.

Shares are down 26.58% on the year. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.