With consumer spending trends likely to remain strong next year, MasterCard’s (NYSE:MA) revenue will probably continue to grow significantly in 2024. Moreover, the company’s financial results show that it can indeed perform well in the current economic environment and that it can more than hold its own against its many fintech challengers. And in another positive sign for MA stock, evidence strongly suggests that Wall Street remains enamored with the company and its highly profitable business model.
Given all of these points, I expect MasterCard’s shares to significantly outperform the S&P 500 next year.
Consumer Spending Is Likely to Continue to Grow Rapidly Next Year
In August, U.S. consumer spending climbed 0.4% versus July. That came on the heels of a huge 0.9% month-over-month gain in July compared with June.
The data shows that, despite the travel slowdown, consumers’ spending levels are continuing to trend sharply upwards.
Also encouragingly, MasterCard Chief Financial Officer Sachin Mehra last month told an interviewer, “What we see from a consumer standpoint is that the consumer continues to be resilient. And we all know that the labor market continues to be strong. We are seeing strong wage growth to take place.”
As I’ve noted in the past, consumer spending levels are influenced primarily by the state of the labor market. And the labor market continues to remain very strong, as shown by the nearly 157,000 nonfarm jobs that the U.S. added last month. Due to the onshoring trend, the energy transition, high government spending, and the funds that businesses still have from loans that they received during the pandemic, I expect the labor market to remain very strong in 2024. Consequently, consumer spending should continue to grow rather rapidly in 2024, enabling MasterCard to keep reporting impressive financial results.
MasterCard Reported Strong Q2 Results
MasterCard’s revenue jumped 14% in the second quarter versus the same period a year earlier, while its operating income soared 21% year-over-year to $3.7 billion.
As is always the case, the firm’s margins were impressive, as its operating margin came in at 58.3%. And despite America’s elevated inflation levels and rising labor costs, MA’s operating margin actually was much higher than the 54.9% level that it had achieved in Q2 of 2022.
The company’s business model produces high-profit margins because the credit card network that it operates is not labor intensive at all, while the firm earns significant fees on every purchase made using its cards.
Further, as I noted in the introduction to this column, MasterCard’s strong financial results show that it is not losing significant market share to its many challengers in the fintech space, led by PayPal (NASDAQ:PYPL) and Block (NYSE:SQ).
Also noteworthy is that Mastercard is continuing to convince more large banks to use its network. For example, the company recently signed new deals with Fiserv (NYSE:FI) and Citizens Bank in the U.S. while adding the UK’s NatWest and Spain’s Santander (NYSE:SAN) in Europe.
The Street Continues to Be Upbeat on MA Stock
In Q2, billionaire Ray Dalio lowered his stake in MA by 50% in Q2, but he still owned nearly 155,000 of its shares as of the end of the quarter. Well-known hedge fund Soroban Capital, on the other hand, increased its stake in MA stock which it had initially bought during the previous quarter. Moreover, institutions either held or bought 683 million shares of MasterCard in Q2 while selling only 32.8 million shares.
Finally, as of Sept. 20, Wells Fargo’s (NYSE:WFC) analysts continued to identify MasterCard as one of their Signature Picks. The name was one of five of the bank’s picks in the Financials category.
Wall Street’s affection for MA should help boost the shares in 2024.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
