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MasterCard Has More Room to Run in 2014 (Update 1)

Updated from 10:18 a.m. ET with late morning market action and additional comments on payment processor stocks from KBW analyst Sanjay Sakhrani.

NEW YORK ( TheStreet) -- MasterCard (MA - Get Report) is hot, following a series of shareholder-friendly announcements late Tuesday, and analysts believe the stock has quite a bit more room to run.

The payment processor's shares were up 3.7% in late morning trading Wednesday to $7792.03, following the announcement of a a 10-for-1 split on Jan. 21, 2014, for investors of record as of Jan. 9.  The split "will not result in any taxable income, gain or loss to stockholders,"  according to the company.

MasterCard also announced an increase in its quarterly dividend on common shares to $1.10 from 60 cents.  Following the split, the quarterly dividend will be 11 cents a share.

The company also put in place a new plan to buy back up to $3.5 billion in common shares.  Those buybacks will commence after MasterCard completes its current $2 billion buyback plan, under which the company is authorized to buy back $524 million in shares. 

MasterCard reported net revenue of $6.22 billion for the first three quarters of 2013, increasing 13% from $5.496 billion a year earlier.  Earnings for the first three quarters came in at $2.493 billion, or $20.46 a share, growing from $2.154 billion, or $17.07 a share, during the first three quarters of 2012.  While earnings grew by 16%, earnings-per-share were up 20%, because the company's weighted average share count declined 3%, reflecting share buybacks.

In comparison, Visa (V - Get Report) -- MasterCard's payment processing rival -- reported a 13% year-over-year increase in operating revenue for its fiscal 2013 ended September 30, while its earnings grew to $4.98 billion, or $7.61 a share, in fiscal 2013 from $2.144 billion, or $3.17 a share, in fiscal 2012.  The 2013 bottom line reflected a tax benefit of $2.277 billion, while the 2012 earnings were hit by $4.100 billion in litigation provisions.

Major Durbin Stakes

MasterCard's stock was up 56% year-to-date through Tuesday's close, exceeding the performance Visa, which was up "only" 33% through Tuesday's close at $199.43.

A major factor in the "drag" on Visa's shares is the lawsuit by a group of merchants against the Federal Reserve of the regulator's implementation of the Durbin Amendment of the Dodd-Frank banking reform legislation.  U.S. district court judge Richard J. Leon in Washington ruled in August that the Fed had "clearly disregarded Congress's statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit transaction."

The Durbin Amendment placed limits on the interchange fees paid by merchants to banks to process debit card purchase transactions. The amendment also gave retailers more freedom to choose which network to use to route debit card payments.

Leaving aside the ongoing arguments about the fees banks may charge to merchants to purchase debit card purchases, the big issue for the payment processors is whether or not "non-exclusivity rules" for payment networks should apply to all debit card purchases, and not just to the ones requiring the customer to input a PIN code.

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