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NEW YORK (TheStreet) – With worst-than-expected results coming out from Visa (V) - Get Free Report, investors in MasterCard (MA) - Get Free Reportpaid dearly on Friday for what is called in the market as "tandem trading."

MasterCard stock is around $76, down 9% on the year to date. Investors don't mind locking in gains ahead of the company's earnings report this week. After all, shares of MasterCard have paid investors well, soaring close to 300% over the past five years. MasterCard will announce financial results Thursday.

As we've seen from Visa, whose shares lost more than 3.5% Friday, why take the chance with all of these gains on the table? Visa credit cards might be "everywhere you want to be" but the stock is not because of geopolitical issues including sanctions on Russia affecting card processing volumes. MasterCard is no exception. Investors would be wise to get out now while there's still time.

From a fundamental perspective, MasterCard's stock, which trades at a trailing price/earnings ratio of 28, is not cheap. When looking at the stock based on next year's earnings estimates of $3.60, these shares still trade at a P/E of 21, which is seven points higher than the industry average P/E of 14. Even on the most bullish assumptions, the stock would be fairly priced on next year's estimates. This means there is no point to bidding up the shares today with geopolitical risks on the table.

In that regard, in 2013 the company processed 53 billion transactions totaling $4.1 trillion. Trailing only Visa, MasterCard has nearly 1.3 billion credit and debit cards in circulation and is accepted at over 30 million locations. One of these locations happens to be Russia, where sanctions are likely to affect the company's earnings in the coming quarters until a resolution is reached.

What management says during its conference call about ongoing payments regulation changes in Russia is what will drive the stock. The Russian parliament, in April, passed a new law that forces both MasterCard and Visa to pay a security deposit of 25% of their average daily turnover in Russia to the central bank. And they have to do this once every quarter. The new law becomes effective Oct. 31 of this year.

Visa took the hard stance and ended its relationships with two Russian banks in April, which caused weakness in its cross-border payment volumes. This was one of the reasons Visa's earnings disappointed investors Friday. The question his, how will MasterCard react?

If the MasterCard is unable to meet Russian demands, like Visa, it will be shut out of the Russian payment landscape. Unlike Visa, MasterCard seems open to accept the terms offered by the Russian Central Bank. In June, management sought proposals from local Russian payment processors in search for potential partnerships. This could be an encouraging sign.

It shows that MasterCard is willing to comply with Russia's requirements to keep domestic processing within the country. If MasterCard is able to secure a partner, this would be the cheaper option that to invest capital to build its own processing facility. Still, this doesn't resolve the 25% security deposit that is required on daily volumes. That is still a hefty ransom that can impact long-term profitability.

Investors must also consider is that the entire payment processing landscape is changing. While MasterCard does command 25% of the U.S. credit and debit card transaction volumes, mobile payments are likely to affect position. Apple (AAPL) - Get Free Report and Facebook (FB) - Get Free Report are rapidly entering that payment space, given that they have close to 2 billion combined credit/debit card accounts within their ecosystems. Add Google (GOOGL) - Get Free Report and potentially Amazon (AMZN) - Get Free Report, payment processing can quickly become commoditized.

The good news is, this is not going to happen overnight. MasterCard, and for that matter Visa, have several years left of above-average growth. They have time to form partnerships with the likes of Apple to ensure they remain important names within payment transaction for years to come.

For now, however, there is too much risk and too much money on the table to hold shares of either company.

At the time of publication, the author was long AAPL.

Follow @Richard_WSPB

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates MASTERCARD INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate MASTERCARD INC (MA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, increase in net income and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 12.2%. Since the same quarter one year prior, revenues rose by 14.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • MA's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MA has a quick ratio of 1.60, which demonstrates the ability of the company to cover short-term liquidity needs.
  • MASTERCARD INC has improved earnings per share by 17.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MASTERCARD INC increased its bottom line by earning $2.57 versus $2.19 in the prior year. This year, the market expects an improvement in earnings ($3.01 versus $2.57).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 13.6% when compared to the same quarter one year prior, going from $766.00 million to $870.00 million.
  • The gross profit margin for MASTERCARD INC is rather high; currently it is at 62.38%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.96% significantly outperformed against the industry average.