"In this recession, consumers are spending less per purchase on their credit cards -- but that hasn't slowed down the credit card company MasterCard (NYSE: MA)," says Paul Tracy.
In his The StreetAuthority Market Advisor, he points out, "In the second quarter, MasterCard's net income grew by +26%, beating Wall Street's expectations by a significant margin." Here's his review.
"MasterCard makes its money from the fees it charges merchants and the banks that issue its cards. The issuing banks make money by charging consumers interest.
"And as we've seen, the banks can lose money when consumers default on their credit card debt. But MasterCard's fee-based business model has been relatively resilient during the downturn.
"People are still using their credit cards. In fact MasterCard reported credit card transactions were up +7.9% in the second quarter.
"And although the dollar value of the transactions was lower by -9.3%, much of the decline was offset by the higher transaction fees MA in instituted back in April.
"MasterCard's net revenues were up just +2.7%. But by cutting administrative and marketing costs by -23.4%, the company not only increased profits but grew its operating margin from 33.4% to 43.5%, excluding one time charges.
"In its recent earnings announcement, the company said it would be difficult to meet a previously set revenue growth target of between +12% and +15% for the 2009-2011 period. But after seeing MasterCard's ability to control costs, my staff and I are less concerned about slower revenue growth.
"And brighter days may already to be at hand. The company noted that cross-border transactions seem to be stabilizing going into the third quarter. While this might be anecdotal, MasterCard's observation coincided with reports that GDP is rebounding in larger European countries like Germany and France.
"MasterCard skillfully navigated the worst of the global recession and appears to be sailing in smoother seas. While consumers may keep their spending in check for the foreseeable future, MasterCard's higher fee structure should mitigate any continued weakness. We believe MasterCard is a solid buy under $225 per share."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
9-04-2009 @ 11:45AM
djzoeyphat said...
What about the banks and CC companies that revoke credit account even if the account is in good standing and at zero?!?!?!. Cabelas just revoked and closed my account after not using it much and the account was at zero. I was trying not to encure more debit. Again, damned if you do and damned if you don't!!!
9-04-2009 @ 12:24PM
charles said...
Everyone should file for bankruptcy and screw over the credit card companies. It is crazy what the credit card companies are doing right now to good people who have always paid their bills on time. Plus the charges to merchants are ridiculous right now. The credit card companies seem to forget that if merchants didn't except their cards then there would be no cards.
9-04-2009 @ 12:46PM
dragonlegende said...
i have a BOA credit card will NEVER use them again...i had a 20000 limit never been late or anything dropped my limit to 800 dollars that is a big drop.......i owed like 265 dollars just paid it off and cancelled the card ohhhh yh i forgot my apr was 9.99 JUMPED TO 14.99...i called them as they said due to the economy..they had to raise my apr......didnt they get govt funding also?????
9-11-2009 @ 1:42AM
Bill said...
I received a call from B.O.A. offering me a credit card...at first I thought a third card would be good as I was planning on a trip and figured the extra credit couldn't hurt. As the lady was taking my info and got to my SS number, I began to think, what if this isn't B.O.A.? I told her to send me the application via snail mail so that I could verify etc. About two weeks later I received A CREDIT CARD with a $1000.00 limit. Long to short;I simply cut the card up and mailed it back to the issuing address in Delaware. For a year I received mailings and telephone offerings on that cc even though I had sent it back with a cancel notice. This is where it gets cute...After about a year I received a notice from B.O.A. that "my cc account" had been canceled due to "LACK OF ACTIVITY!" Now that doesn't seem very interesting or germane to this article until you find out that the cancellation went on my credit report as a negative. After a lot of cross com,it's still on my record and my score is still lower than it was!! Be diligent!!!Check your report every six months,at least!!!