Mastercard Buys Transfast to Expand Cross-Border Business

Mastercard Inc. MA has completed the previously announced acquisition of Transfast, a global cross-border account-to-account money transfer network.

The acquisition will complement Mastercard’s existing suite of payment solutions. The deal would expand the company’s connectivity worldwide in the account-to-account space, enhance compliance capabilities and enable it to offer superior foreign exchange tools.

Transfast already supports the Mastercard Send solution for business-to-business (B2B) and person-to-person (P2P) payment services.

The deal will expand Mastercard’s cross-border business, which has been increasing over the years (17% in 2018, 13% in 2017 and 12% in 2016).

The buyout is also in line with the company’s focus on growing its presence in the B2B space. Recently, it launched Mastercard Track, which solves key challenges in the procure-to-pay process, including managing supply chain risk and creating more transparency in the B2B payments process. The company estimates $120 trillion in addressable payment flows in B2B globally.

Visa Inc. V is also making concerted efforts to grab a share of the vast cross-border business.

Businesses face immense challenges, in terms of higher costs, uncertainty, compliance requirements while making cross-border payments to their vendors. Transfast, along with Mastercard, will be a one-stop solution for these businesses.

Mastercard also remains focused on inorganic growth via buyouts as part of its long-term growth strategy. Acquisitions added 2% each in 2014 and 2015 to the company’s revenues. Though the contribution of the same to top line was meager in 2016, these buyouts added 2% to revenues in 2017 but drained net revenues by 2% in 2018.  However, the acquisitions contributed 1.2% to the earnings per share in 2018.

In a year’s time, the stock has gained 36% compared with the industry’s rally of 25%.

 

The stock commands a premium valuation due to its strong growth trajectory, robust business model and a brand name with significant market share in the payment-processing industry. The stock is currently trading at forward 12-month price-to-earnings ratio of 32.85, higher than the industry’s P/E of 26.95. The company’s earnings for 2019 is expected to grow at 17.1%, compared with the industry’s average earnings growth of 12.7%.

The stock carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are EVO Payments, Inc. EVOP and Green Dot Corp. GDOT. Each of these stocks carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Both the companies surpassed estimates in each of the four reported quarters with an average positive surprise of 34.9% and 17.47%, respectively.

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Green Dot Corporation (GDOT) : Free Stock Analysis Report
 
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