Should you buy Mastercard stock?

Positive news from the Federal Reserve and improving earnings alone weren’t enough to boost Mastercard (NYSE:MA) stock. That’s because the Mastercard giant was trading lower after reporting first-quarter earnings results Wednesday afternoon.

The company’s strong performance also indicates that consumer spending has not yet been significantly affected by rising inflation. However, Mastercard shares were down about 1% to $441 per share as of 12pm on Thursday.

Meanwhile, the overall market had a good day, with all major indices posting gains. This may have been triggered by Federal Reserve Chairman Jerome Powell’s comments on Wednesday that a rate hike was unlikely.

Mastercard’s decline is likely tied to its outlook for lowering its projected 2024 revenue growth, but is that enough to be cause for concern? Let’s take a look.

Consumer spending still strong

First, the good news: Mastercard had a solid quarter, showing that consumer spending remains strong. Sales rose 10% to $6.3 billion, and net income rose 28% to $3 billion, or $3.22 per share.

Mastercard held down costs, increasing its operating margin by 2.2 percentage points to 56.8%. This means that this highly efficient business generates a return of almost 57% per dollar of sales after expenses.

Mastercard makes money from fees every time you use your card, so the more you spend, the more money you make. In the first quarter, all three key spending metrics increased significantly year-over-year. The total amount spent by Mastercard users increased by 10%, and the amount of cross-border transactions comprised of international transaction fees increased by 18%. Switched Transaction, a transaction processing and settlement fee, soared 13%.

Mastercard CEO Michael Miebach said, “We continued our strong performance this quarter, delivering strong sales and earnings growth driven by healthy consumer spending, strong cross-border volume growth of 18% year-over-year, and new deal wins in all regions. “The momentum continued,” he said. Earnings Report.

There were some concerns about consumer spending, given the rise in inflation in March and the third consecutive month of declines in consumer confidence in April. However, this may be why Mastercard is lowering its outlook slightly for fiscal 2024 net revenue growth, forecasting it to be in the low double digits, down from its previous forecast of low double digits. Number growth.

There will be no dramatic impact from the antitrust settlement.

Investors may be wondering what the impact will be of the $30 billion settlement Mastercard and Visa reached in March in antitrust lawsuits brought by merchants.

Simply put, the two credit card giants must reduce swipe fees for merchants by at least 4 basis points for at least three years. Additionally, over a five-year period, the average swipe fee must be at least 7 basis points lower than the current average rate. The agreement also removes anti-steer restrictions and improves the ability of small merchants to negotiate fees.

Miebach didn’t say much about the impact the settlement would have on its earnings call, but said he was “relieved” that the deal was done.

“Basically, we will reduce the interchange rate a little bit, and on the other hand we will make it clearer and simpler about the surcharge rules and discount rules,” Miebach said on the earnings call. “We do not expect the interchange changes to have any dramatic impact on our business. And for sellers, let’s look at what choices they have regarding surcharges and discounts. We have seen in the past that the surcharges are not always clear to consumers.”

Mastercard’s report was assessed mostly negatively by analysts. That’s because most people have lowered their price targets slightly due to the uncertain economic environment, the potential impact of the agreement, and slightly reduced revenue growth forecasts.

I don’t think these headwinds are enough to change my view on Mastercard much. The consensus may have some impact, but overall this is a great stock that is reasonably valued and has been remarkably resilient through various economic and market cycles. Still looks like a solid buy.