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Black Friday, Nov. 29, is less than a week away. The iconic day can be described as one of numbers:
Millions of bargain hunters will spend hours upon hours waiting in lines to spend billions to walk away with the best deals. This year, U.S. Black Friday sales are expected to total about $13.6 billion, a 3.9% increase from last year, according to IbisWorld research.
There's one sure winner to emerge from this buying frenzy. And no, it's not necessarily Wal-Mart (NYSE: WMT) or Target (NYSE: TGT). In my mind, it's the credit card companies who really benefit.
In 2011, the National Retail Federation found Americans primarily use credit cards to fuel their Black Friday buying binges. In 2012, MasterCard (NYSE: MA) reported a 26.2% increase in retail transactions compared to the previous year tied to Black Friday purchases.
With tight budgets prevailing again this year, MA may receive another boost as consumers choose to hoard their cash and put purchases on their cards.
But it's not just Black Friday, or even U.S. retail sales, that is driving MA higher. Currently, over 1.9 billion people worldwide use a MasterCard, and the card is accepted at over 35.9 million locations around the planet. These numbers are rising as the payment processor expands internationally.
For its third quarter, MasterCard reported its card holders made over 10 billion transactions, spending a total of $1 trillion. Credit card transactions accounted for $590 billion while debit card transactions reached $454 billion.
According to MasterCard president and CEO, Ajay Banga, the company is seeing "growth across all geographies," due to increased acceptance of mobile payments.
Through its Simplify Commerce program, the company is focused on providing secure mobile and e-commerce payment solutions to help make customer transactions simpler and more convenient.
MasterCard is also fixed on bringing its mobile payment solutions to emerging markets, like Bangladesh, where electronic payments are expected to increase 20-fold, from $500 million to $10 billion, by 2018.
As MasterCard expands its foray into emerging markets, it should continue to fuel the company's growth.
The technical picture certainly appears bullish. Shares have been on a major uptrend for the past two years and show no sign of slowing.
Rising off a December 2010 low around $213, MA formed a major uptrend and has more than tripled to date. Shares are currently trading near their all-time high of $759.70, which was made on Nov. 18.
Periodic consolidations in the stock have been brief. In August, for example, shares spiked on higher-than-normal trading volume, hitting a high near $656. There the stock met resistance and retreated slightly.
However, the pullback was short lived. By September, MA climbed past resistance, steadily making a series of new highs.
In October, the stock fell slightly, but met nearby support around the $656 level. After touching this support, shares have moved steadily higher.
With no nearby resistance in sight, MA could continue to appreciate. Analysts who follow the stock have price targets as high as $890. At current levels, this presents traders with an 18% potential return.
The strong technical outlook is driven by solid fundamentals.
Analysts project fourth-quarter revenue will increase 12.6% to $2.14 billion from $1.9 billion in the comparable year-ago quarter. They expect full-year 2013 revenue will rise 13.1% to $8.36 billion from $7.39 billion last year. It is estimated that 2014 revenue will increase 12.1% to $9.37 billion.
The earnings outlook is similarly solid. With a boost from Black Friday sales, analysts project fourth-quarter earnings will rise 23% to $5.98 per share from $4.86 in the year-ago quarter.
For the full 2013 year, earnings are expected to rise nearly 20% to $26.40 per share from $22.04 last year. And 2014 earnings are expected to come in at $31.02 per share, a 17.5% increase.
In addition to a strong fundamental outlook, the company has a clean balance sheet with over $6 billion in cash and no long-term debt.
Risks to consider: As I described in my Nov. 1 article on NXP Semiconductors (NASDAQ: NXPI), electronic payment solutions appear to be the wave of the future. MasterCard has a strong foothold in this sector. It is the second largest credit card company, behind only Visa (NYSE: V). However, emerging electronic payment options like Google Wallet could give the company a run for its money and hurt MA's growth.
Recommended Trade Setup:
-- Buy MA at the market price-- Set stop-loss at $655.79, just below current support provided by both the major trendline and previous consolidation level near $656-- Set initial price target at $890 for a potential 18% gain
While the sector is hanging on by a thread, shares of this company have already started breaking down.
As the broader market bull looks ready to be put out to pasture, shares of this company are poised for a rebound.
Management is taking decisive action to dramatically turn this company and its shares around.