We’re Boosting Our Price Target for This Holding as Wall Street Grows Bullish
But we won’t be as aggressive as some higher targets because we aren’t inclined to pay up for slower EPS growth.
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This week we saw several Wall Street price targets for Mastercard MA shares move higher, including Morgan Stanley and BMO upping their targets to $564 to $565 from $544 to $550. Others made more aggressive moves, such as USB, which raised its target to $610 from $590.
Underpinning those adjustments was Mastercard sharing at this week’s Investment Community Meeting that it sees its EPS growing at a mid-teens rate over the 2025 to 2027 period. Driving that forecast is the continued global shift to card and digital payments from cash and checks. as well as Mastercard’s efforts to tap the commercial payment space, including disbursements and remittances and commercial invoice payments that have been made by cash, check or wire payment.
Putting some fingers on the keyboard and applying a scenario analysis of mid-teens EPS growth rates starting with the 2024 market consensus EPS of $14.50, we find a 2027 range of $21 to $22.50. While that’s what the math shows, we suspect folks have yet to consider potential 2027 EPS, especially given what could happen with the 2017 tax cuts and 2026 EPS prospects. For now, we’ll stick to the 2025 guidance, which looks like $16.40 to $16.80 if we apply the same mid-teen scenarios we did above. Based on those figures, the new $565 price targets we mentioned above equate to a P/E ratio between 33.6x to 34.5x, which happens to be slightly below the average P/E multiple of 35.4 that MA peaked at over the last few years. From a P/E-to-growth (or PEG) ratio perspective, that average peak P/E multiple equates to a just under 2.1x.
The problem we have with that is that a mid-teens EPS growth over the next few years is somewhat slower than the roughly 17% EPS growth Mastercard averaged over the last two years. So, when we examine the $565 or higher price targets mentioned above we find the PEG ratio based on 15% EPS growth rate as a proxy for mid-teens EPS growth is 2.25x or higher. In some cases, way higher. That equates to paying more for slower growth.
Two issues that are hard to adjust for in the above analysis are how conservative Mastercard’s EPS growth guidance may be in the medium-term, and the impact of Trump administration policies on consumer spending. Near-term, we continue to see real wage growth helping power consumer spending, and that will lead us to tweak our MA price target to $540 from $535. As we do this, we’ll lift our MA panic point to $450 from $420.
With less than a 5% upside to our new MA price target, we’ll continue to rate MA shares a Two. As new insight on potential tax rates and other policies are had or as jobs and wage data are published, we’ll revisit that new target as needed. Next week, we’ll have an updated technical look at the MA chart.
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At the time of publication, TheStreet Pro Portfolio was long MA.
