As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, Mastercard Inc (MA).
Profile
Mastercard is the second-largest payment processor in the world, having processed close to over $8 trillion in transactions during 2022. Mastercard operates in over 200 countries and processes transactions in over 150 currencies.
Recent Performance
Over the past twelve months the share price is up 28.76%.
Inputs
- Discount Rate: 5%
- Terminal Growth Rate: 2%
- WACC: 5%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2023 | 10 | 9.52 |
| 2024 | 11 | 9.98 |
| 2025 | 13 | 11.23 |
| 2026 | 14 | 11.52 |
| 2027 | 16 | 12.54 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 544.00 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 426.24 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 54.79 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 481.02 billion
Net Debt
Net Debt = Total Debt – Total Cash = 7.02 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 474.00 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $497.38
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $497.38 | $403.36 |
18.90% |
Based on the DCF valuation, the stock is currently undervalued. The DCF value of $497.38 per share is higher than the current market price of $403.36. The Margin of Safety is 18.90%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.
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6 Comments on “Mastercard Inc (MA) DCF Valuation: Is The Stock Undervalued?”
How did you came up with a WACC of 5?
Cost of equity 9.63%, Total Equity $6.29B, Cost of Debt 3.36%, Total Debt $14.02B, Corporate Tax Rate 15% = WACC 4.95.
How did you come up with the following growth rates for FCF
2024 10%
2025 18%
2026 8%
2027 14%
My starting point was projected FCF of 10,11,13,14,16. Which resulted in present values of 9.52, 9.98, 11.23, 11.52, 12.54, using the following formula for each of the 5 years, FCFY1/(1+B8)^1, FCFY2/(1+B8)^2, FCFY3/(1+B8)^3, FCFY4/(1+B8)^4, FCFY5/(1+B8)^5.
Thank you for your response. Was your starting point based on the numbers due to a financial model?
Yes.