Offshore

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⁠Dimitry Nakhla | Babylon Capital®
5 months ago I stated:

“Today at $429💵 $MA appears to be a strong consideration for investment”

Since then, $MA shares rallied +25% ✅

As I stated in the post attached below 👇🏽

“As you can see, $MA appears to have attractive return potential EVEN if we assume greater or equal to 28x earnings (well-below the 10-year mean & more than justified given its quality & growth rate)

$MA is such a high-quality business & has the potential to compound in the mid teens for the next 5 years & companies with strong & consistent earnings growth tend to look cheap years later (even if investors thought they were “expensive” or even better, slightly undervalued, at the time)”

A sober valuation analysis on $MA 🧘🏽‍♂️

•NTM P/E Ratio: 29.16x
•10-Year Mean: 31.32x

•NTM FCF Yield: 3.48%
•10-Year Mean: 3.41%

As you can see, $MA appears to be trading below fair value

Going forward, investors can receive ~7% MORE in earnings per share & ~2% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $MA is a super business

BALANCE SHEET✅
•Cash & Short Term Inv: $7.66B
•Long-Term Debt: $13.54B

$MA has a strong balance sheet, an A+ S&P Credit Rating & 19.79x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 62.9%
•2020: 40.6%
•2021: 45.7%
•2022: 58.5%
•2023: 61.1%
•LTM: 64.1%

RETURN ON EQUITY✅
•2019: 141.4%
•2020: 102.5%
•2021: 124.7%
•2022: 144.0%
•2023: 167.4%
•LTM: 186.3%

$MA has excellent return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $8.31B
•2023: $25.10B
•CAGR: 11.68%

FREE CASH FLOW✅
•2013: $3.98B
•2023: $11.61B
•CAGR: 11.30%

NORMALIZED EPS✅
•2013: $2.61
•2023: $12.26
•CAGR: 16.73%

PAID DIVIDENDS✅
•2013: $0.29
•2023: $2.37
•CAGR: 23.37%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 1.21B
•LTM Shares Outstanding: 939M

By reducing its shares outstanding ~22.4%, $MA increased its EPS by ~28.8% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 100.0%
•LTM Operating Margins: 58.1%
•LTM Net Income Margins: 46.1%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~7% MORE in EPS & ~2% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $MA has to grow earnings at a 14.58% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be slightly more than the (14.58%) required growth rate:

2024E: $14.27 (16.4% YoY) *FY Dec
2025E: $16.57 (16.1% YoY)
2026E: $19.33 (16.7% YoY)

$MA has a good track record of meeting analyst estimates ~2 years out, but let’s assume $MA ends 2026 with $19.33 in EPS & see its CAGR potential assuming different multiples

31x P/E: $599.23💵 … ~14.9% CAGR

30x P/E: $579.90💵 … ~13.4% CAGR

29x P/E: $560.57💵 … ~11.9% CAGR

28x P/E: $541.24💵 … ~10.6% CAGR

As you can see, $MA appears to have attractive return potential EVEN if we assume greater or equal to 28x earnings (well-below the 10-year mean & more than justified given its quality & growth rate)

$MA is such a high-quality business & has the potential to compound in the mid teens for the next 5 years & companies with strong & consistent earnings growth tend to look cheap years later (even if investors thought they were “expensive” or even better, slightly undervalued, at the time)

Today at $429💵 $MA appears to be a strong consideration for investment

Given that $MA has historically bottomed near 26x earnings, I'd also leave some room to purchase additional shares if the stock were to trade at that multiple, which would be about 10% lower, or around $386💵

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 [...]

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