Hedgeye CEO Keith McCullough is adding MasterCard (MA) to the long side of Investing Ideas today. Below is a brief note. 

Looking to add some US Equity Beta to your book with SPY bouncing off the low-end of its @Hedgeye Risk Range?

Mastercard (MA) remains one of Josh Steiner's favorite long-term large caps.

Here's his recap of what we thought was another great quarter.

Mastercard recorded a strong set of results in the second quarter, highlighted by +12.2% Y/Y, above-consensus growth in net revenues and an expanded core operating margin. 

Domestic assessments, transaction processing, and cross-border revenues of $1.68B, $2.05B, $1.37B grew +9.3%, +12.19%, and +14.69% Y/Y, coming in -1.2%, -2.3%, and +2.2% relative to street estimates, respectively. Other revenues of $962M grew by +23%, surpassing street estimates by +7%. In addition, client incentives of $1.96B, up +16.1% Y/Y and +2.6 percentage points higher than gross revenue growth, registered in-line with consensus and accounted for 32.23% of gross revenues.

Operating expenses were -0.75% lower Y/Y, driven entirely by the $225M litigation provision taken in the prior year quarter. Excluding the decline in litigation provision, operating expenses grew by +14% Y/Y. Accordingly, core operating margin, measured as EBIT ex. litigation provision and irregular/infrequent items as a % of gross revenue, came in at 39.50%, marking a +20 bp linked-quarter expansion, albeit a -90 bp Y/Y contraction.

As a result, operating income increased by +24% Y/Y, with pretax income rising by +31% as a result of higher other income driven by gains recorded on the firm's equity investments in the period. Net income increased +30.5% Y/Y following a +33 bp Y/Y increase in the effective tax rate.

In sum, diluted GAAP and Non-GAAP EPS of $2.00 and $1.89 grew by +33.6% and +13.7% Y/Y, aided by a -2.29% Y/Y reduction in the weighted-average share count and ahead of street estimates for $1.81 and $1.83, respectively.

Furthermore, during the quarter, Mastercard returned $1.9B or 7.7MM shares to investors with dividends of $337 MM.

Buy on red,

KM