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Mastercard

The Morningstar Equity Analyst Report for Mastercard Inc as of March 11, 2025, indicates a last price of $537.12 against a fair value estimate of $500.00, suggesting the stock is slightly overvalued. Mastercard maintains a wide economic moat due to its strong position in the electronic payment industry, benefiting from the ongoing shift towards digital payments, especially in emerging markets. Despite facing competition from Visa and potential regulatory challenges, Mastercard is expected to continue achieving double-digit growth in the coming years.

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Mastercard

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Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Last Price Fair Value Estimate Price/FVE Market Cap Economic MoatTM Equity Style Box Uncertainty Capital Allocation ESG Risk Rating Assessment1
537.12 USD 500.00 USD 1.07 479.38 USD Bil Wide 3 Large Growth Medium Standard ;;;;;
10 Mar 2025 25 Feb 2025 21:11, UTC 11 Mar 2025 5 Mar 2025 06:00, UTC

Price vs. Fair Value

Last Close: 537.12

520 Fair Value: 500.00
25 Feb 2025 21:11, UTC

450 Overvalued
Undervalued
380

310

240
2020 2021 2022 2023 2024 YTD
Analysis
1.23 1.02 0.94 1.01 1.13 1.07 Price/Fair Value
20.08 1.16 -2.68 23.31 24.08 2.15 Total Return %
Morningstar Rating

Total Return % as of 10 Mar 2025. Last Close as of 10 Mar 2025. Fair Value as of 25 Feb 2025 21:11, UTC.
Contents
Business Description Mastercard Enjoys a Wide Moat and Strong Growth
Business Strategy & Outlook (25 Feb 2025)
Bulls Say / Bears Say (25 Feb 2025) Prospects
Economic Moat (25 Feb 2025)
Fair Value and Profit Drivers (25 Feb 2025)
Business Strategy & Outlook Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025
Risk and Uncertainty (25 Feb 2025)
Capital Allocation (25 Feb 2025) Mastercard has multiple characteristics that should draw investors’ attention. First, despite ongoing
Analyst Notes Archive evolution in the payment space, we think a wide moat surrounds the business and view Mastercard’s
Financials
position in the current global electronic payment infrastructure as essentially unassailable. Second,
ESG Risk
Mastercard benefits from the ongoing shift toward electronic payments, which should provide plenty of
Appendix
Research Methodology for Valuing Companies
opportunities to utilize its wide moat to create value over the long term. Digital payments, on a global
basis, surpassed cash payments just a few years ago, suggesting that this trend still has a lot of room to
Important Disclosure
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of run, and we think emerging markets could offer a further leg of growth even as growth in developed
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and
Investment Research Policy. For information regarding conflicts of interest, please
markets starts to slow. Finally, Mastercard is something of a tollbooth business, and the company is
visit: http://global.morningstar.com/equitydisclosures.
relatively agnostic to smaller shifts within the electronic payment space, as it earns fees regardless of
The primary analyst covering this company does not own its stock.
whether payment is credit, debit, or mobile.
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1

Rating.
Mastercard has faced some volatility over the past few years. Cross-border transactions, which are
particularly lucrative for the networks, came under heavy pressure due to the fallout from the pandemic
and a reduction in global travel. We expected a full recovery, and we believe that has largely played out.
Although the ongoing bounceback remains a modest tailwind, we think the benefit is now mostly
realized. From a longer-term point of view, we think it is likely that smaller and more regional networks
are building out capacity for cross-border transactions, which could eat into growth a bit in the coming
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Sector Industry years, but we haven't seen a material effect yet.

y Financial Services Credit Services
In the near term, we expect Mastercard's results to normalize to a level in line with the prepandemic
Business Description
Mastercard is the second-largest payment processor in period. We see the state of the economy as Mastercard’s biggest risk. A downturn in the economy
the world, having processed close to $10 trillion in would slow overall growth, as Mastercard’s revenue is sensitive to the volume and dollar amount of
volume during 2024. Mastercard operates in over 200 consumer transactions. But we don’t see any secular industry trends that will impede Mastercard’s
countries and processes transactions in over 150
ability to maintain double-digit growth in the coming years, and the company looks poised to continue
currencies.
to modestly outperform its larger peer, Visa.

Bulls Say Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025
u Mastercard historically has outperformed Visa in terms of growth. Its smaller size and some leveling in
market share between the two could maintain this trend.
u There is still plenty of runway for growth in electronic payments. Electronic payments only surpassed
cash payments on a global basis a few years ago.
u Management is appropriately focused on long-term growth opportunities and not near-term margins.

Bears Say Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025
u Mastercard is a distant number-two player in a scalable industry, which could hamper long-term
margins.
u The oligopolistic nature of the industry makes Visa and Mastercard a target for regulators, and the
companies have historically paid some large fines.
u UnionPay provides an example of how governments could favor local networks, and this could shut
Mastercard out of some emerging-market opportunities.

Economic Moat Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025

Payment networks such as Mastercard benefit, unsurprisingly, from a network effect. The more
consumers that are plugged into a payment network, the more attractive that payment network
becomes for merchants, which, in turn, makes the network more convenient for consumers and so on.
In our view, this dynamic explains why a handful of networks have come to dominate electronic
payments over time, and at this point, Mastercard has reached essentially universal acceptance in most
developed markets. While the network effect is the initial and primary driver of economic moats in the
space, the highly scalable nature of payment processing leads to sizable cost advantages for large
payment networks, which further cements their competitive positions. For the dominant payment
networks with global footprints, such as Mastercard, the network effect and resulting cost advantage is
strong enough to lead to a wide moat, in our view.

Mastercard’s origin lies in the formation of the Interbank Card Association by a group of banks that
acquired Master Charge in 1969 and adopted the company’s current logo. In the decades since,
Mastercard has been one of the largest beneficiaries of the ongoing shift toward using electronic
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 3 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Competitors
Mastercard Inc Class A MA American Express Co AXP Discover Financial Services DFS Visa Inc Class A V

Fair Value Last Close

Last Close Last Close 187.00 341.48
537.12 261.32 Uncertainty : High
Fair Value Fair Value Fair Value
500.00 255.00 Last Close 289.00
Uncertainty : Medium Uncertainty : Medium 156.99 Uncertainty : Medium

Analysis
Economic Moat Security
Wide 1 Security
Wide 2 Security
Narrow 3 Security
Wide 4
Currency USD USD USD USD
Fair Value 500.00 25 Feb 2025 21:11, UTC 255.00 24 Feb 2025 19:22, UTC 187.00 23 Jan 2025 16:04, UTC 289.00 13 Dec 2024 19:08, UTC
1-Star Price 675.00 344.25 289.85 390.15
5-Star Price 350.00 178.50 112.20 202.30
Assessment Fairly Valued 7 Mar 2025 Fairly Valued 7 Mar 2025 Fairly Valued 7 Mar 2025 Overvalued 7 Mar 2025
Morningstar Rating QQQ11 Mar 2025 21:37, UTC QQQ11 Mar 2025 21:37, UTC QQQ11 Mar 2025 21:37, UTC QQ11 Mar 2025 21:40, UTC
Analyst Brett Horn, Senior Equity Analyst Michael Miller, Equity Analyst Michael Miller, Equity Analyst Brett Horn, Senior Equity Analyst
Capital Allocation Standard Standard Standard Standard
Price/Fair Value 1.07 1.00 0.84 1.15
Price/Sales 17.68 2.83 2.20 18.69
Price/Book 75.65 6.06 2.34 17.63
Price/Earning 36.79 19.27 8.86 32.87
Dividend Yield 0.51% 1.07% 1.78% 0.65%
Market Cap 479.38 Bil 179.42 Bil 39.70 Bil 640.70 Bil
52-Week Range 428.86—582.23 214.51—326.28 119.31—205.76 252.70—366.54
Investment Style Large Growth Large Blend Mid Growth Large Blend

payments. During 2024, the company processed over $8 trillion in purchase transactions. Visa,
meanwhile, processes roughly twice as many transactions as Mastercard and leads it in terms of market
share in every major global region. However, Mastercard has a similarly commanding lead over any
other network and is the only other company with a truly global presence. Mastercard’s global market
share for credit and debit cards has been estimated at 29% and 24%, respectively, a level that dwarfs
competitors outside of Visa. Mastercard may face some competition in processing domestic
transactions, but we think the company‘s global presence is a relatively unique asset that allows the
company to process cross-border transactions and charge materially higher fees in this area. We don’t
believe that building a new network with a comparable size and reach is realistic over any foreseeable
time line and view Mastercard’s position within the current global electronic payment infrastructure as
essentially unassailable.

Mastercard has translated its dominant competitive position into an enviable level of profitability.
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 4 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Operating margins (using net revenue) in 2024 were 58%, and margins have generally trended upward
over time due to the scalability of the business. Further, given the relatively asset-light nature of the
business, returns on invested capital are multiple above any reasonable estimate of the cost of capital.

Fair Value and Profit Drivers Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025

We are increasing our fair value estimate for Mastercard to $500 per share from $465, due to time value
since our last update and some modest changes to our assumptions. Our new fair value estimate
equates to 31.6 times projected 2025 earnings, adjusted for one-time expenses.

While revenue declined in 2020 due to the coronavirus and that issue bled into the start of 2021, growth
bounced back quickly and Mastercard has enjoyed outsize growth the past few years. We think
conditions have now normalized and we expect a return to growth levels more in line with the
prepandemic period. We think secular trends and improving share should allow Mastercard to maintain
strong growth rates over the next five years. We project net revenue to grow at a 12% compound
annual growth rate. We think growth will be increasingly fueled by international markets, and
Mastercard's mix leaves it relatively well-positioned.

While margins were materially pressured in 2020, profitability has recovered since, and margins (based
on net revenue) are now slightly ahead of the prepandemic level. In the future, we expect operating
margins (based on net revenue) to improve from 58% in 2024 to 61% by 2029, based on the scalability of
the business. This equates to an annual average improvement of about 70 basis points. On a gross
revenue basis, we expect increasing client incentives to result in basically flat margins over the
projection period. Given the company’s history of fines and one-time charges, we include ongoing one-
time costs roughly in line with historical averages in our projections, but these costs are excluded from
the margin levels above.

We use a cost of equity of 9%.

Risk and Uncertainty Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025

We assign Mastercard a Medium Morningstar Uncertainty Rating.

Mastercard’s revenue is tied to the amount and volume of consumer purchases, which creates
significant macroeconomic sensitivity. Cross-border transactions are highly lucrative for Mastercard,
making the company particularly sensitive to any swings in these types of transactions. Cross-border
transactions are disproportionally tied to travel and online transactions, both of which tend to be
sensitive to macroecnomic conditions.

Both Visa and Mastercard have paid substantial fines historically related to the oligopolistic nature of
the industry, and we see legal and regulatory risk as intrinsic to the business model, given merchants’

© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 5 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

desires to lower fees.

While Visa's and Mastercard’s positions in the current electronic payment infrastructure are largely set,
the payment industry continues to evolve in ways that could reduce their volume or profitability. Some
governments have shown a preference for local payment networks, which could freeze Mastercard out
of certain markets and impede the value it drives from its global network.

We see the company's largest environmental, social, and governance risk as data security. Any
company involved in processing payments has potential exposure to breaches in its systems.

Capital Allocation Brett Horn, CFA, Senior Equity Analyst, 25 Feb 2025

Our Morningstar Capital Allocation Rating for Mastercard is Standard. In our opinion, the company’s
balance sheet is sound, its capital investment decisions are fair, and its capital return strategy is
appropriate. We have a favorable view of the management team at Mastercard, but we believe the
company's wide moat and positive secular tailwinds have been the dominant factor behind its strong
historical results.

Ajay Banga served as the company’s CEO from 2010 until the end of 2020. Banga initially moved to the
chairman position, but then retired at the end of 2021. Michael Miebach, who has been with the
company for over 10 years and previously served as chief product officer, replaced Banga as CEO. We
like that Miebach held leadership positions in the company across geographic regions, as we expect the
company’s growth to come increasingly from international markets over time. Still, given that the
company turned to a company veteran for the CEO role, we didn’t expect any major strategic pivots as a
result of this change, and think this view has largely played out. We view staying the course as the right
move for Mastercard.

While we attribute the company’s strong historical performance primarily to the wide moat that
surrounds the business and secular tailwinds, it is notable that Mastercard has generally outperformed
Visa in terms of growth in recent years. This suggests management is effectively exploiting the growth
opportunities the company has in front of it. Further, we like that management has been hesitant to
commit to operating margin targets over the short term. We believe the company still has significant
growth opportunities, and the nature of the business requires reinvestment through the income
statement. We think focusing on near-term profitability targets could hamper long-term value creation,
and we think management is right to maintain flexibility on this score, although we think the scalability
of the business model will allow for margin improvement over time.

While Mastercard has completed some acquisitions, they have generally been small and sporadic. We
think the company’s competitive position argues against aggressive M&A, and we are pleased that
management has shown discipline in this regard.

Management historically has returned essentially all of Mastercard’s profitability to shareholders and

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

we appreciate the company’s diligence on this front. Dividends per share have doubled over the past
five years. We like this trend and think committing to a larger dividend helps to signal managment's
commitment to returning capital.

Analyst Notes Archive

Mastercard Earnings: Growth Picks Up Brett Horn, CFA,Senior Equity Analyst,30 Jan 2025

Mastercard’s recent results suggested that consumer spending was largely holding steady as impacts
from one-time issues started to fade. But fourth-quarter results suggest the environment may be
improving a bit. We will maintain our $465 fair value estimate. We see the shares as modestly
overvalued. The quarter suggests the near-term outlook may be a little better than we had anticipated,
and we think the market is reacting to that, but we believe significant uncertainty still exists on this
front.On a constant-currency basis, net revenue grew 16% year over year, up from 14% last quarter.
Payment volume grew 11.6% on a constant-currency basis, up from 10.5% in the previous quarter.
Management pointed to low unemployment and moderate inflation as supportive of consumer
spending.Cross-border volume has been a tailwind for the networks over the past couple of years, as
the bounceback in travel from pandemic lows drove outsize growth. That tailwind has been fading in
recent quarters, but this quarter bucked the trend. Constant-currency cross-border volume, excluding
intra-Europe transactions—which are priced similarly to domestic transactions—grew 20% year over
year, up from 17% last quarter. We believe most of the benefit from the travel recovery has been
realized, but this quarter suggests there could be further upside. Still, we’d like to see more than one
quarter to materially revise our view.Adjusted operating margin improved to 56.3% from 56.2% last year.
For the full year, the company saw a 40-basis-point improvement. Margin improvement appears to have
slowed, but we don’t read much into near-term margin results, as we think lower margins are often
driven by investments for growth. Client incentives grew 17% year over year on a constant-currency
basis. We think incentives growing faster than revenue supports our view that Mastercard will not
achieve margin improvement on a gross revenue basis over time.

Mastercard Earnings: Settling Into a Groove Brett Horn, CFA,Senior Equity Analyst,31 Oct 2024

We think Mastercard’s third-quarter earnings largely mirrored what we saw from Visa, although
Mastercard appears to be performing a bit better at the margin. In recent quarters, we’ve seen
pandemic, political, and macro effects dissipate, and we see this quarter as further evidence of stability.
We think Mastercard’s attractive long-term growth prospects and its strong profitability become more
clear in this type of situation. We will maintain our $465 fair value estimate for the wide-moat company
and see shares as about fairly valued.Constant currency net revenue increased 14% year over year, a 1-
percentage-point improvement from the previous quarter. Payment volume was up 10% constant
currency, also up slightly from last quarter. Overall, though, we think results from the networks suggest

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

consumer spending is holding steady.Cross-border volume has been the one area seeing an ongoing
tailwind over the past couple of years. But this tailwind has been fading, and this quarter provided
further evidence. Constant-currency cross-border volume, excluding intra-Europe transactions—which
are priced similarly to domestic transactions—grew 17% year over year in the quarter, down a bit from
18% in the last quarter. While Mastercard is seeing cross-border growth fade at a similar rate as Visa,
its absolute growth is higher, suggesting its volumes might not have fully normalized yet.Adjusted
operating margins (based on net revenue) improved to 59.3%, compared with 58.8% last year. The rate
of margin improvement was in line with what we’ve seen from the company this year and with our
long-term expectations. Mastercard is outperforming Visa on this front, but we don’t read much into
near-term margin results, as we think lower margins are often driven by investments for growth. Client
incentives grew 19% year over year on a constant currency basis, highlighting how margin improvement
on a gross revenue basis is a much more difficult task.

Mastercard: Buying Recorded Future for $2.65 Billion Brett Horn, CFA,Senior Equity Analyst,12 Sep
2024

Mastercard announced that it will acquire Recorded Future for $2.65 billion. Recorded Future is a cyber
defense company with 1,900 customers across 75 countries. Mastercard believes the addition of
Recorded Future will add to its fraud prevention capabilities. Controlling fraud within its payment
networks is an ongoing issue for Mastercard, so investing in this area seems appropriate. Due to its
wide moat, we don’t think Mastercard needs to be aggressive in terms of mergers and acquisitions, but
smaller deals like this that add certain capabilities make sense, in our view. However, the deal is not
large enough to have a material impact on our $465 fair value estimate, which we maintain. We see
Mastercard’s shares as fairly valued at the moment.

Mastercard Earnings: Results Suggest Consumer Spending Remains Steady Brett Horn, CFA,Senior
Equity Analyst,31 Jul 2024

While Mastercard’s second-quarter results show many of the same dynamics we saw from Visa,
Mastercard appears to be modestly outperforming its peer at the moment. We continue to believe that
Mastercard has slightly stronger long-term prospects given its smaller size and lower exposure to
relatively mature markets. We will maintain our $451 fair value estimate for the wide-moat company
and see shares as fairly valued at the moment.Net revenue increased 11% year over year, or 13% on a
constant-currency basis. Gross dollar volume was up 9% on a constant-currency basis, and switched
transactions were up 11%. This represented a slight decline from the previous quarter, but this appears
to be mainly due to the inclusion of leap year last quarter. Overall, while we think macro conditions
remain the biggest potential swing factor in the near term, these results suggest that consumer
spending remains relatively stable for now.Cross-border volume is particularly lucrative for Mastercard
and has been a significant tailwind recently. However, we’ve seen signs that the impact is tapering off
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 8 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

for both Visa and Mastercard, and this quarter provided further evidence. Constant-currency cross-
border volume, excluding intra-Europe transactions—which are priced similarly to domestic
transactions—grew 18% year over year in the quarter, down slightly from 19% in the last quarter. While
growth in this area is still healthy and Mastercard is modestly outperforming Visa, the recovery in cross-
border volume increasingly looks to be largely realized.Adjusted operating margin for the quarter was
59.4% compared with 58.6% last year. With Mastercard seeing relatively strong growth, it appears to be
benefiting from some scale benefits. Client incentives increased 16% year over year on a constant-
currency basis. With client incentives resuming their historical upward path, margin improvement on a
gross revenue basis will likely be harder to realize.

Visa and Mastercard: Judge May Not Approve Settlement Brett Horn, CFA,Senior Equity Analyst,14
Jun 2024

In March, Visa and Mastercard announced that they had reached a settlement to a long-standing
antitrust lawsuit. As part of the agreement, the networks would slightly lower credit interchange fees
and cap these fees at the current level for five years. At the time, we were happy to see this lawsuit
seemingly resolved. But according to The Wall Street Journal, the judge has now informed Visa and
Mastercard that she deems these changes inadequate and is unlikely to approve the settlement. This
would presumably force the networks to arrange a new settlement or go to trial. While this is an
obvious setback and we would prefer to see this matter closed as quickly as possible, we believe Visa
and Mastercard’s unique competitive positions and their wide moats create ongoing legal and
regulatory event risk, and this lawsuit represents just one piece of that. We will maintain our $272 and
$451 fair value estimates for Visa and Mastercard, respectively, and see shares for both companies as
about fairly valued.

Mastercard Earnings: A Stable Environment Highlights Mastercard’s Strengths Brett Horn,

CFA,Senior Equity Analyst,1 May 2024

Mastercard’s first-quarter results show that the company is on a steady path and performing roughly in
line with its peer Visa. Following the dramatic ups and downs of the pandemic and the ensuing
recovery, we think Mastercard has settled into a more stable environment, and the company’s first-
quarter results are largely in line with our long-term expectations. We will maintain our $451 fair value
estimate and wide moat rating, and we consider shares fairly valued at the moment.Net revenue was
up 11% year over year on a constant-currency basis. Gross dollar volume increased 10% on a constant-
currency basis, and transactions were up 13%. While macro uncertainty exists, consumer spending
appears to be holding for now, and we think the current environment highlights the solid growth the
company can achieve over time, given favorable long-term secular tailwinds.Cross-border volume, which
has been the most volatile area over the past few years, has now settled into a more stable groove.
Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 9 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

to domestic transactions—grew 19% year over year in the quarter, in line with the last quarter.
Mastercard appears to be modestly outperforming Visa on this front. Cross-border growth is still a bit
above our long-term expectations, but we think most of the benefit from the bounceback in travel has
been realized.Adjusted operating margins (on a net revenue basis and excluding one-time items)
increased to 58.8% from 58.2% last year. With solid growth, we think the scalability of the business is
showing through. However, client incentives increased 20% year over year on a constant-currency basis.
With incentives increasing again now that pandemic-related distortions have rolled off, margin
improvement on a gross revenue basis will be much harder to come by. K

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Competitors Price vs. Fair Value

American Express Co AXP

Last Close: 261.32

283 Fair Value: 255.00
24 Feb 2025 19:22, UTC

233 Overvalued
Undervalued
183

133

83
2020 2021 2022 2023 2024 YTD
1.12 1.04 0.89 1.05 1.29 1.00 Price/Fair Value
-1.49 36.73 -8.47 28.37 59.86 -11.72 Total Return %
Morningstar Rating

Total Return % as of 10 Mar 2025. Last Close as of 10 Mar 2025. Fair Value as of 24 Feb 2025 19:22, UTC.

Discover Financial Services DFS

Fair Value: 187.00

23 Jan 2025 16:04, UTC
172
Last Close: 156.99
137 Overvalued
Undervalued
102

32
2020 2021 2022 2023 2024 YTD
1.13 1.02 0.67 0.74 1.13 0.84 Price/Fair Value
8.81 29.72 -13.35 17.65 56.61 -8.97 Total Return %
Morningstar Rating

Total Return % as of 10 Mar 2025. Last Close as of 10 Mar 2025. Fair Value as of 23 Jan 2025 16:04, UTC.

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Competitors Price vs. Fair Value

Visa Inc Class A V

Last Close: 341.48

339 Fair Value: 289.00
13 Dec 2024 19:08, UTC

294 Overvalued
Undervalued
249

204

159
2020 2021 2022 2023 2024 YTD
1.18 0.98 0.91 1.00 1.09 1.15 Price/Fair Value
17.06 -0.31 -3.40 26.21 22.22 8.24 Total Return %
Morningstar Rating

Total Return % as of 10 Mar 2025. Last Close as of 10 Mar 2025. Fair Value as of 13 Dec 2024 19:08, UTC.

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Morningstar Historical Summary

Financials as of 31 Dec 2024
Fiscal Year, ends 31 Dec 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 YTD TTM
Revenue (USD Bil) 9.67 10.78 12.50 14.95 16.88 15.30 18.88 22.24 25.10 28.17 28.17 28.17
Revenue Growth % 2.4 11.5 16.0 19.6 12.9 -9.4 23.4 17.8 12.9 12.2 12.2 12.2
EBITDA (USD Bil) 5.39 6.11 7.11 7.85 10.48 8.72 11.46 12.95 15.01 16.80 16.80 16.80
EBITDA Margin % 55.7 56.7 56.9 52.5 62.1 57.0 60.7 58.3 59.8 59.6 59.6 59.6
Operating Income (USD Bil) 5.06 5.91 6.74 8.37 9.70 8.16 10.23 12.72 14.63 16.33 16.33 16.33
Operating Margin % 52.3 54.9 54.0 56.0 57.4 53.3 54.2 57.2 58.3 58.0 58.0 58.0
Net Income (USD Bil) 3.81 4.06 3.92 5.86 8.12 6.41 8.69 9.93 11.20 12.87 12.87 12.87
Net Margin % 39.4 37.7 31.3 39.2 48.1 41.9 46.0 44.7 44.6 45.7 45.7 45.7
Diluted Shares Outstanding (Mil) 1,137 1,101 1,072 1,047 1,022 1,006 992 971 946 927 927 927
Diluted Earnings Per Share (USD) 3.35 3.69 3.65 5.60 7.94 6.37 8.76 10.22 11.83 13.89 13.89 13.89
Dividends Per Share (USD) 0.64 0.76 0.88 1.00 1.32 1.60 1.76 1.96 2.28 2.64 2.64 2.64

Valuation as of 28 Feb 2025

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Recent Qtr TTM
Price/Sales 11.6 10.9 13.7 13.8 18.9 23.1 20.1 15.7 16.7 18.0 18.0 19.0
Price/Earnings 29.9 28.5 35.3 38.2 44.2 53.5 44.2 34.7 37.2 39.8 39.8 41.5
Price/Cash Flow 29.9 25.3 34.5 30.1 46.9 45.2 42.0 30.1 37.0 34.8 34.8 36.1
Dividend Yield % 0.66 0.74 0.58 0.53 0.44 0.45 0.49 0.56 0.53 0.5 0.5 0.48
Price/Book 17.3 18.0 24.8 33.7 60.6 61.3 52.6 52.4 63.3 64.5 64.5 81.3
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating Performance / Profitability as of 31 Dec 2024
Fiscal Year, ends 31 Dec 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 YTD TTM
ROA % 24.1 23.2 19.6 25.4 30.0 20.4 24.4 26.0 27.6 28.4 28.4 28.4
ROE % 59.4 69.5 70.4 107 143 104 126 145 169 192 192.0 192.0
ROIC % 43.9 41.0 36.9 52.0 64.8 39.4 44.9 49.7 54.4 56.7 56.7 56.7
Asset Turnover 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.6 0.6 0.6 0.6 0.6
Financial Leverage
Fiscal Year, ends 31 Dec 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Recent Qtr TTM
Debt/Capital % 35.2 47.8 49.8 51.9 59.1 65.3 64.2 68.6 67.4 72.9 72.9 —
Equity/Assets % 37.1 30.3 25.6 21.7 20.2 19.0 19.4 16.3 16.3 13.5 13.5 —
Total Debt/EBITDA 0.6 0.8 0.8 0.8 0.8 1.5 1.2 1.1 1.0 1.1 1.1 —
EBITDA/Interest Expense 88.3 64.4 46.2 42.2 46.8 22.9 26.6 27.5 26.1 26.0 26.0 26.0

Morningstar Analyst Historical/Forecast Summary as of 25 Feb 2025

Financials Estimates Forward Valuation Estimates
2023 2024 2025 2026 2027
Fiscal Year, ends 31 Dec 2024 2023 2024 2025 2026 2027
Price/Sales 9.9 10.5 9.3 8.2 7.3
Revenue (USD Mil) 40,279 45,796 51,608 58,193 65,677 Price/Earnings 34.7 36.3 33.0 28.3 24.3
Revenue Growth % 14.0 13.7 12.7 12.8 12.9 Price/Cash Flow — — — — —
EBITDA (USD Mil) 15,013 16,797 18,808 21,341 24,401 Dividend Yield % 0.5 0.5 0.6 0.7 0.8
EBITDA Margin % 37.3 36.7 36.4 36.7 37.2 Price/Book 58.3 75.2 79.1 89.4 88.2
EV/EBITDA 27.2 29.0 26.0 22.9 20.0
Operating Income (USD Mil) 14,547 16,262 17,960 20,397 23,348
Operating Margin % 36.1 35.5 34.8 35.1 35.6
Net Income (USD Mil) 11,637 13,448 14,422 16,417 18,610
Net Margin % 28.9 29.4 28.0 28.2 28.3
Diluted Shares Outstanding (Mil) 946 927 906 882 860
Diluted Earnings Per Share(USD) 12.30 14.51 15.93 18.60 21.64
Dividends Per Share(USD) 2.28 2.64 3.04 3.49 4.02

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

ESG Risk Rating Breakdown

Exposure Subject Subindustry (36.0) u Exposure represents a company’s vulnerability to ESG

Company Exposure1 39.6 risks driven by their business model
39.6
u Exposure is assessed at the Subindustry level and then
– Manageable Risk 36.5 Medium
2 0 55+ specified at the company level
Unmanageable Risk 3.1 u Scoring ranges from 0-55+ with categories of low, me-
Low Medium High
dium, and high-risk exposure

Management
u Management measures a company ’s ability to manage
Manageable Risk 36.5 ESG risks through its commitments and actions
63.2%
– Managed Risk3 23.0 Strong
u Management assesses a company's efficiency on ESG

Management Gap4 13.4 100 0 programs, practices, and policies

Strong Average Weak u Management score ranges from 0-100% showing how

Overall Unmanaged Risk 16.6 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

16.56
Low

Negligible Low Medium High Severe ESG Risk Rating is of Mar 05, 2025. Highest Controversy Level is as of Mar
08, 2025. Sustainalytics Subindustry: Data Processing. Sustainalytics
ESG Risk Ratings measure the degree to which a company’s value is impacted by environmental, social, and governance provides Morningstar with company ESG ratings and metrics on a monthly
risks, by evaluating the company’s ability to manage the ESG risks it faces. basis and as such, the ratings in Morningstar may not necessarily reflect
current Sustainalytics’ scores for the company. For the most up to date rating
1. A company's Exposure to material ESG issues 2. Unmanageable Risk refers to risks that are inherent to a particular business model that cannot be managed by and more information, please visit: sustainalytics.com/esg-ratings/.
programs or initiatives 3. Managed Risk = Manageable Risk multiplied by a Management score of 63.2% 4. Management Gap assesses risks that are not
managed, but are considered manageable 5. ESG Risk Rating Assessment = Overall Unmanaged Risk = Management Gap plus Unmanageable Risk

Peer Analysis 05 Mar 2025 Peers are selected from the company's Sustainalytics-defined Subindustry and are displayed based on the closest market cap values
Company Name Exposure Management ESG Risk Rating

Mastercard Inc 39.6 | Medium 0 55+ 63.2 | Strong 100 0 16.6 | Low 0 40+

American Express Co 39.2 | Medium 0 55+ 56.6 | Strong 100 0 18.3 | Low 0 40+

Visa Inc 36.8 | Medium 0 55+ 64.7 | Strong 100 0 14.9 | Low 0 40+

Appendix
Historical Morningstar Rating
December
Mastercard Inc November
Class A MA October
11 Mar 2025 21:37, SeptemberAugust
UTC July May May April March February January

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - QQQ QQ QQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQ QQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQ QQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQ QQQ QQQQ QQQQ QQQ QQQ QQQQ QQQ QQQ QQQ QQQ QQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQQ QQQ QQQ QQ QQ QQ QQ QQ QQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQ QQ QQQ QQ QQ QQ QQQ QQQ QQQ QQQ QQQ QQ

December
American Express November
Co AXP 11 October
Mar 2025 21:37, September
UTC August July May May April March February January

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - QQQ QQ Q
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQ QQQ QQQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQQ QQQ QQQQ QQQQ QQQ QQQQ QQQQ QQQ QQQ QQQ QQ QQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQ QQ QQ QQ QQ QQ QQ QQQ QQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQ QQQ QQQQ QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ

December
Discover Financial November
Services October
DFS 11 Mar 2025 September
21:37, UTC August July May May April March February January

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - QQQ QQQ QQQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQQ QQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQQ QQQ QQ QQQ QQQ QQQ QQQ QQQ QQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQ

December
Visa Inc Class November
A V 11 Mar 2025 October
21:40, UTC September August July May May April March February January

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - QQ QQ QQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQQ QQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQ QQQ QQQQ QQQQ QQQQ QQQ QQQQ QQQ QQQ QQQ QQQ QQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQQ QQQ QQQ QQ QQ QQ QQ QQQ QQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQ QQ QQQ QQ QQ QQ QQ QQ QQQ QQQ QQ QQ

Research Methodology for Valuing Companies

Overview turns on invested capital (or ROIC) over and above our es- rive our annual free cash flow forecast.
At the heart of our valuation system is a detailed projec- timate of a firm’s cost of capital, or weighted average
Stage II: Fade
tion of a company’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are
The second stage of our model is the period it will take
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five
the company ’s return on new invested capital—the re-
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching
turn on capital of the next dollar invested (“RONIC”)—to
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale.
decline (or rise) to its cost of capital. During the Stage II
ally standardized, proprietary discounted cash flow, or
Companies with a narrow moat are those we believe are period, we use a formula to approximate cash flows in
DCF, modeling templates. We use scenario analysis, inde-
more likely than not to achieve normalized excess returns lieu of explicitly modeling the income statement, balance
pth competitive advantage analysis, and a variety of other
for at least the next 10 years. Wide-moat companies are sheet, and cash flow statement as we do in Stage I. The
analytical tools to augment this process. Moreover, we
those in which we have very high confidence that excess length of the second stage depends on the strength of
think analyzing valuation through discounted cash flows
returns will remain for 10 years, with excess returns more the company’s economic moat. We forecast this period to
presents a better lens for viewing cyclical companies,
likely than not to remain for at least 20 years. The longer last anywhere from one year (for companies with no eco-
high-growth firms, businesses with finite lives (e.g.,
a firm generates economic profits, the higher its intrinsic nomic moat) to 10–15 years or more (for wide-moat com-
mines), or companies expected to generate negative
value. We believe low-quality, no-moat companies will panies). During this period, cash flows are forecast using
earnings over the next few years. That said, we don’t dis-
see their normalized returns gravitate toward the firm’s four assumptions: an average growth rate for EBI over the
miss multiples altogether but rather use them as support-
cost of capital more quickly than companies with moats. period, a normalized investment rate, average return on
ing cross-checks for our DCF-based fair value estimates.
new invested capital (RONIC), and the number of years
We also acknowledge that DCF models offer their own
When considering a company's moat, we also assess until perpetuity, when excess returns cease. The invest-
challenges (including a potential proliferation of estim-
whether there is a substantial threat of value destruction, ment rate and return on new invested capital decline un-
ated inputs and the possibility that the method may miss
stemming from risks related to ESG, industry disruption, til a perpetuity value is calculated. In the case of firms
shortterm market-price movements), but we believe these
financial health, or other idiosyncratic issues. In this con- that do not earn their cost of capital, we assume marginal
negatives are mitigated by deep analysis and our
text, a risk is considered potentially value destructive if its ROICs rise to the firm’s cost of capital (usually attribut-
longterm approach.
occurrence would eliminate a firm’s economic profit on a able to less reinvestment), and we may truncate the
cumulative or midcycle basis. If we deem the probability second stage.
Morningstar’s equity research group (”we,” “our”) be-
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize
the company as possessing an economic moat. Stage III: Perpetuity
future cash flows it can generate. The Morningstar Rating
Once a company’s marginal ROIC hits its cost of capital,
for stocks identifies stocks trading at a discount or premi-
2. Estimated Fair Value we calculate a continuing value, using a standard per-
um to their intrinsic worth—or fair value estimate, in
Combining our analysts’ financial forecasts with the petuity formula. At perpetuity, we assume that any
Morningstar terminology. Five-star stocks sell for the
firm’s economic moat helps us assess how long returns growth or decline or investment in the business neither
biggest risk adjusted discount to their fair values, where-
on invested capital are likely to exceed the firm’s cost of creates nor destroys value and that any new investment
as 1-star stocks trade at premiums to their intrinsic worth.
capital. Returns of firms with a wide economic moat rat- provides a return in line with estimated WACC.
Four key components drive the Morningstar rating: (1) our ing are assumed to fade to the perpetuity period over a
longer period of time than the returns of narrow-moat Because a dollar earned today is worth more than a dollar
assessment of the firm’s economic moat, (2) our estimate
firms, and both will fade slower than no-moat firms, in- earned tomorrow, we discount our projections of cash
of the stock’s fair value, (3) our uncertainty around that
creasing our estimate of their intrinsic value. flows in stages I, II, and III to arrive at a total present
fair value estimate and (4) the current market price. This
value of expected future cash flows. Because we are
process ultimately culminates in our singlepoint star rat-
Our model is divided into three distinct stages: modeling free cash flow to the firm—representing cash
ing.
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
1. Economic Moat Stage I: Explicit Forecast
weighted average of the costs of equity, debt, and pre-
The concept of an economic moat plays a vital role not In this stage, which can last five to 10 years, analysts
ferred stock (and any other funding sources), using ex-
only in our qualitative assessment of a firm’s long-term make full financial statement forecasts, including items
pected future proportionate long-term, market-value
investment potential, but also in the actual calculation of such as revenue, profit margins, tax rates, changes in
weights.
our fair value estimates. An economic moat is a structural workingcapital accounts, and capital spending. Based on
feature that allows a firm to sustain excess profits over a these projections, we calculate earnings before interest,
3. Uncertainty Around That Fair Value Estimate
long period of time. We define economic profits as re- after taxes (EBI) and the net new investment (NNI) to de-
Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company ’s intrinsic
Morningstar Equity Research Star Rating Methodology
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
aimed at identifying the confidence we should have in as-
signing a fair value estimate for a given stock.

Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 17 of 20

Research Methodology for Valuing Companies

thing that can affect our ability to accurately predict Morningstar Equity Research Star Rating Methodology
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.

Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain
we are about the potential dispersion of outcomes, the
greater the discount we require relative to our estimate of
the value of the firm before we would recommend the
purchase of the shares. In addition, the Uncertainty Rat-
ing provides guidance in portfolio construction based on
risk tolerance. Once we determine the fair value estimate of a stock, we justed return is highly likely over a multiyear time frame.
compare it with the stock’s current market price on a Scenario analysis developed by our analysts indicates
Our Uncertainty Ratings are: Low, Medium, High, Very daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
High, and Extreme. lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
which the stock is listed is open. Our analysts keep close ing upside potential.
Margin of Safety
tabs on the companies they follow, and, based on thor-
Qualitative Analysis
QRating ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Uncertainty Ratings QQQQQRating
estimates as warranted. justed return is likely.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
High 40% Discount 55% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
Very High 50% Discount 75% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Extreme 75% Discount 300% Premium serve as a gauge of the broader market’s valuation. When
there are many 5-star stocks, the stock market as a whole QQ We believe investors are likely to receive a less than
Our uncertainty rating is based on the interquartile range, fair risk-adjusted return.
is more undervalued, in our opinion, than when very few
or the middle 50% of potential outcomes, covering the
companies garner our highest rating.
25th percentile–75th percentile. This means that when a Q Indicates a high probability of undesirable risk-adjus-
stock hits 5 stars, we expect there is a 75% chance that ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
the intrinsic value of that stock lies above the current time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
market price. Similarly, when a stock hits 1 star, we ex- our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
pect there is a 75% chance that the intrinsic value of that cessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
stock lies below the current market price. leaving the investor exposed to Capital loss.
prices may adjust).

4. Market Price Our star ratings are guideposts to a broad audience and Other Definitions
The market prices used in this analysis and noted in the individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
report come from exchange on which the stock is listed goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
which we believe is a reliable source. needs, and complete investment portfolio, among other
factors. Capital Allocation Rating: Our Capital Allocation (or
For more details about our methodology, please go to Stewardship) Rating represents our assessment of the
https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be- quality of management’s capital allocation, with particu-
low: lar emphasis on the firm ’s balance sheet, investments,
Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad- and shareholder distributions. Analysts consider compan-
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
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Research Methodology for Valuing Companies

ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing vice to any specific investor. Therefore, investments dis-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- cussed herein may not be suitable for all investors; in-
Corporate governance factors are only considered if they aged ESG Risk score is below 50. vestors must exercise their own independent judgment as
are likely to materially impact shareholder value, though to the suitability of such investments and recommenda-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are tions in the light of their own investment objectives, ex-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, perience, taxation status and financial position. Morning-
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute, star encourages Report recipients to read all relevant is-
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- sue documents (e.g., prospectus) pertaining to the secur-
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- ity concerned, including without limitation, information
Standard rating is most common as most managers will tries covered. relevant to its investment objectives, risks, and costs be-
exhibit neither exceptionally strong nor poor capital alloc- fore making an investment decision and when deemed
ation. The ESG Risk Rating Assessment is a visual representa- necessary, to seek the advice of a financial, legal, tax,
tion of Sustainalytics ESG Risk Categories on a 1 to 5 and/or accounting professional. The information, data,
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low analyses and opinions presented herein are not warran-
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes, ted to be accurate, correct, complete or timely. Unless
cess. Beyond investment strategy, financial leverage, and Severe Risk = 1 Globe. For more information, please visit otherwise provided in a separate agreement, neither
dividend and share buyback policies, analysts also con- sustainalytics.com/esg-ratings/ Morningstar, Inc. or the Equity Research Group repres-
sidered execution, compensation, related party transac- ents that the report contents meet all of the presentation
tions, and accounting practices in the rating. Ratings should not be used as the sole basis in evaluating and/or disclosure standards applicable in the jurisdiction
a company or security. Ratings involve unknown risks and the recipient is located.
Capital Allocation Rating: Our Capital Allocation (or uncertainties which may cause our expectations not to
Stewardship) Rating represents our assessment of the occur or to differ significantly from what was expected Except as otherwise required by law or provided for in a
quality of management’s capital allocation, with particu- and should not be considered an offer or solicitation to separate agreement, the analyst, Morningstar, Inc. and
lar emphasis on the firm’s balance sheet, investments, buy or sell a security. the Equity Research Group and their officers, directors
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are likely to materially impact shareholder value, though antee that the intended investment objectives will be
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tributions. Analysts assign one of three ratings: "Exem- be sustained in future and is no indication of future per- ded for distribution to or use by, any person or entity who
plary", "Standard", or "Poor". Analysts judge Capital Alloc- formance. A security investment return and an investor ’s is a citizen or resident of or located in any locality, state,
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Capital Allocation (or Stewardship) analysis published pri- analysis of the assumptions used in our determining a fair Where this report is made available in a language other
or to Dec. 9, 2020, was determined using a different pro- value price. than English and in the case of inconsistencies between
cess. Beyond investment strategy, financial leverage, and the English and translated versions of the report, the Eng-
dividend and share buyback policies, analysts also con- lish version will control and supersede any ambiguities
sidered execution, compensation, related party transac- General Disclosure associated with any part or section of a report that has
tions, and accounting practices in the rating. been issued in a foreign language. Neither the analyst,
Unless otherwise provided in a separate agreement, re-
cipients accessing this report may only use it in the coun- Morningstar, Inc., or the Equity Research Group guaran-
Sustainalytics ESG Risk Rating Assessment:The ESG tees the accuracy of the translations.
try in which the Morningstar distributor is based. Unless
Risk Rating Assessment is provided by Sustainalytics; a
stated otherwise, the original distributor of the report is
Morningstar company. This report may be distributed in certain localities, coun-
Morningstar Research Services LLC, a U.S.A. domiciled
financial institution. tries and/or jurisdictions (“Territories ”) by independent
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which company’s economic value at risk is driven by en- utors (“Distributors”). Such Distributors are not acting as
This Report is for informational purposes, should not be
vironment, social and governance (ESG) factors. agents or representatives of the analyst, Morningstar,
the sole piece of information used in making an invest-
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Sustainalytics analyzes over 1,300 data points to assess a Distributor distributes our report, the Distributor is solely
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other words, ESG Risk Ratings measures a company’s un- laws, rules, circulars, codes and guidelines established by
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own investment decisions, not to provide investment ad-
Unmanaged Risk is measured on an open-ended scale
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
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from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
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Research Methodology for Valuing Companies

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Research Methodology for Valuing Companies

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Morningstar Equity Analyst Report | Report as of 11 Mar 2025 23:00, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 20

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Price vs. Fair Value

Last Close: 537.12

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Sector Industry years, but we haven't seen a material effect yet.

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Fair Value Last Close

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

We use a cost of equity of 9%.

We assign Mastercard a Medium Morningstar Uncertainty Rating.

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

desires to lower fees.

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Analyst Notes Archive

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Mastercard Earnings: A Stable Environment Highlights Mastercard’s Strengths Brett Horn,

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Competitors Price vs. Fair Value

American Express Co AXP

Last Close: 261.32

Discover Financial Services DFS

Fair Value: 187.00

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Competitors Price vs. Fair Value

Visa Inc Class A V

Last Close: 341.48

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

Morningstar Historical Summary

Valuation as of 28 Feb 2025

Morningstar Analyst Historical/Forecast Summary as of 25 Feb 2025

Mastercard Inc Class A MA QQQ 11 Mar 2025 21:37, UTC

ESG Risk Rating Breakdown

Exposure Subject Subindustry (36.0) u Exposure represents a company’s vulnerability to ESG

Management Gap4 13.4 100 0 programs, practices, and policies

Overall Unmanaged Risk 16.6 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Research Methodology for Valuing Companies

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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