Shares of MasterCard Inc. climbed Tuesday, after a positive note from an analyst who predicted steady, long-term growth in its transaction volume.
Charles Murphy, an analyst with Morgan Stanley, noted that while 43% of U.S purchases are made with cards, only 5% of global transactions are, and both MasterCard and its rival Visa Inc. can expect significant growth abroad for the foreseeable future.
He also noted that with the recent settlement of legal actions with Discover Financial Services and American Express Co., MasterCard can reduce its legal expenses.
"Professional fees" are expected to eat up 5% of MasterCard's revenue this year, Mr. Murphy wrote, but cutting those costs could boost earnings by 2% to 3% next year.
Mr. Murphy reiterated his "overweight" rating on MasterCard's shares and issued three price targets.
In the "bear case," he warned that the ongoing economic slowdown could lead to slower spending worldwide, especially in travel, which would lead to slower revenue and earnings growth, and predicted that the price would fall to $200 per share within 12 months.
In the "base case," with transaction volume growth leading to revenue gains of 22% this year and 13% in 2009, he said that MasterCard shares could reach $320.
And in the "bull case," with revenue increasing 24% this year and 16% next year, Mr. Murphy predicted that the company's share's could reach $400.
Given MasterCard's "stable but robust growth prospects, as well as its status as a safe haven for financials investors, we think shares can outperform our coverage group," he wrote.
By midafternoon, MasterCard shares had increased 1.25% from Monday's closing price, to $249.17