Why Mastercard Call Traders Might Be Ready to Unwind

Is MA undervalued as it continues to struggle in 2021?

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Mastercard Incorporated (NYSE:MA) is an American payment and financial services corporation. MA's principal business is to process payments between banks of merchants and the card-issuing banks or credit unions of the purchasers who use the Mastercard brand debit, credit, and prepaid cards to make purchases. The financial company has connections across more than 210 countries and territories, helping individuals, financial institutions, governments, and businesses all around the world. This afternoon, MA is trading up 0.2% at $341.94.

Recently, MA announced that Sachin Mehra, Mastercard chief financial officer, will present at the virtual Deutsche Bank Technology Conference scheduled for Friday, September 10. The virtual conference will feature sessions with senior executives from leading companies who will present in a Fireside Chat format.

On the earnings front, Mastercard has beat Wall Street's earnings expectations on three of its last four earnings reports. For Q2 of 2020, MA beat analyst estimates by a margin of $0.20, reporting an EPS of $1.36. For Q3 of 2020, Mastercard's EPS increased to $1.60, but they missed expectations by a margin of $0.06. For Q4 of 2020, Mastercard had another increase in earnings, rising to $1.64 per share and beating estimates by a margin of $0.13. For Q1 of 2021, Mastercard reported an EPS of $1.74 and beat expectations by a margin of $0.17.

Mastercard stock has dropped just below its year-to-date and year-over-year breakeven marks. However, MA is up 21% since bottoming at $281.20 last October. Moreover, Mastercard Incorporated offers a forward dividend of $1.76 and a dividend yield of 0.50%.

From a fundamental perspective, it is difficult to imagine Mastercard’s business struggling in the coming years. With the exception of fiscal 2020, MA has maintained an impressive growth rate for multiple years. The biggest concern with Mastercard stock lies in its valuation. Although MA’s impressive growth warrants a premium stock price, Mastercard stock currently trades at an inflated price-earnings ratio of 47.41 and has a very high forward price-earnings ratio of 43.29.

An unwinding of bullish sentiment in the options pits could push MA even lower. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.65 stands in the low 11th annual percentile, suggesting short-term options traders have rarely been more call-biased. 

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