Mastercard’s Robust FCF Propels Stock Value Projection by 35%

Mastercard Stock

Mastercard (NYSE:MA) has demonstrated exceptional financial strength, generating over $7 billion in adjusted free cash flow (FCF) in the current year, as revealed in its Q3 earnings report. This substantial FCF amounts to 38% of the year-to-date (YTD) revenue and an impressive 45.9% of the quarterly sales.

Analysts are now speculating that, based on their 2024 sales forecasts, MA stock could surge by 35%, potentially reaching up to $550 per share by the conclusion of the upcoming year. As of the early trading session on Tuesday, November 21, MA was valued at $407.71 per share, experiencing an 11% increase since the release of earnings on October 26, when it stood at $364.69.

Examining MA Stock Value through FCF Margins

A detailed analysis of Mastercard’s financials reveals the company’s robust performance, particularly in terms of its free cash flow margins. While the YTD FCF margin stands at 37.9%, recent quarterly FCF margins have surpassed this figure.

For instance, Seeking Alpha’s quarterly FCF data indicates that Mastercard generated $3.233 billion in cash flow from operations (CFFO) in Q3. After subtracting $104 million in capex and $130 million in capitalized software spending, the adjusted FCF for Q3 reached $2.999 billion, representing a remarkable 45.9% of the $5.533 billion in Q3 sales. This quarterly margin, significantly higher than the YTD average, can be used to estimate future adjusted FCF.

Projections for MA Stock Value Based on Adj. FCF

With 33 analysts forecasting an average sales figure of $28.08 billion for 2024, applying the 45.9% adjusted FCF margin suggests that Mastercard could generate $12.88 billion in adjusted FCF next year. Utilizing a 2.5% FCF yield to this estimate allows for the derivation of a future market cap valuation.

By dividing $12.88 billion by 2.5%, equivalent to a 40x multiplier, the estimated market cap reaches $515 billion. Considering that Mastercard’s present market valuation is $382 billion, this implies a potential increase of 34.9% in the stock’s value. Therefore, MA stock could climb to $550 per share, up from the current price of $407.71, over the next year, especially as analysts incorporate higher adjusted FCF estimates into their price targets.

Additionally, Mastercard’s ongoing share buyback program adds another layer of potential value. Annually, shareholders could witness $9.6 billion in buybacks, representing 2.4% of the present market cap. This suggests that the target price for MA stock could surpass $550 per share based on its buyback initiatives. In essence, investors may anticipate a significant uptick in the stock price in the coming year.

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