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Stock Analyst Update

The Week in Stocks: MasterCard Rings up a Great Quarter

Plus, Canadian income trusts blow up, CVS and Caremark merge, and more.

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MasterCard's (MA) third-quarter results, announced Wednesday, came in above Morningstar analyst Ryan Batchelor's expectations, thanks to very strong credit card use volume. Earnings per share rose 80% from the year-ago period. After adjusting for legal settlement expenses incurred in last year's third quarter, operating profits jumped more than 40%, thanks to higher revenue and operating margin expansion. Revenue rose 14%, thanks to a 19% increase in transactions processed and a 15% increase in the dollar volume spent with MasterCards, partially offset by higher rebates and incentives that the firm provides to its customers. Although there was a slight decline in the number of credit card transactions processed, heavy debit card use more than made up for it. In short, Batchelor's thesis is playing out better than he expected. Therefore, he has raised his fair value estimate for MasterCard by $10.
 Full Analyst Report: MasterCard

Canadian Income Trusts Take a Dive
The Canadian finance ministry turned the income trust market upside down Tuesday when it proposed to eliminate the securities' tax advantages. For instance, under the proposal, current trusts will be taxed at a 31.5% rate starting in 2011, essentially eliminating the tax benefits they currently enjoy. This will deal a blow to Morningstar's fair value estimates for some of these companies, given that the higher tax outlays will reduce our long-term cash-flow projections. Another repercussion is that certain trust projects may no longer be economical under the new tax regime. For example, with a greater cost of capital, trusts may be forced to delay or abandon more-expensive oil and gas projects, and production may suffer.
 Full Analyst Report: Canetic Resources Trust
 Full Analyst Report: Enerplus Resources Fund
 Full Analyst Report: Harvest Energy Trust
 Full Analyst Report: Pengrowth Energy Trust
 Full Analyst Report: Penn West Energy
 Full Analyst Report: Primewest Energy Trust
 Full Analyst Report: Provident Energy Trust

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Jeffrey Ptak has a position in the following securities mentioned above: MSFT. Find out about Morningstar’s editorial policies.