As part of our ongoing series, each week we conduct a DCF analysis on a notable company. This week, we take a look at Mastercard Inc. (MA).
Profile
Mastercard is a global leader in payment processing, providing transaction services to banks, merchants, and consumers. The company operates in over 210 countries, facilitating credit, debit, and prepaid card transactions. Mastercard generates revenue through transaction fees, cross-border fees, and data analytics services. With a focus on digital payments and financial inclusion, the company continues to expand its footprint in fintech and AI-driven fraud detection.
Recent Performance
Over the past twelve months, Mastercard’s share price is up 14.88%.
Source: Google Finance
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 2%
- WACC: 9%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
|---|---|---|
| 2025 | 10.5 | 9.63 |
| 2026 | 11.6 | 9.78 |
| 2027 | 13.0 | 10.02 |
| 2028 | 14.6 | 10.28 |
| 2029 | 16.3 | 10.46 |
Total Present Value of FCFs = 50.17 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (16.3 × 1.02) / (0.09 – 0.02)
= 237.71 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 237.71 / (1.09)^5
= 154.75 billion
Enterprise Value Calculation
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value
= 50.17 + 154.75
= 204.92 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 18.23 – 8.78
= 9.45 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt + Equity
= 204.92 – 9.45 + 6.48
= 201.95 billion
Per-Share DCF Value
Shares Outstanding = 904.89 million = 0.90489 billion
Per-Share DCF Value = Equity Value / Shares Outstanding
= 201.95 / 0.90489
= 223.08
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $223.08 | $549.07 | -59.38% |
Based on the DCF valuation, Mastercard appears significantly overvalued. The estimated intrinsic value of $223.08 per share is far lower than the current market price of $549.07, resulting in a -59.38% Margin of Safety.
This suggests that Mastercard is trading at a substantial premium compared to its fundamental valuation based on our discounted cash flow analysis.
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