From the stock's debut in late May through last week, shares of MasterCard Inc. nearly doubled in price as investors largely discounted the merchant lawsuits that had weighed on the initial public offering, analysts said.
Instead, the market focused on a string of announcements suggesting the company was trying to reconcile with retailers and on stronger-than-expected financial results, analysts said. One analyst said many investors viewed the company as a bet on consumer spending without the credit risk.
Two analysts downgraded the shares last month. This week two more did so, and the shares have lost some of their gains.
On Tuesday MasterCard shares fell 1.22%, to $71.91. They peaked above $75 a share on Friday. Craig J. Maurer, an analyst at Soleil Securities-Fulcrum Research, downgraded MasterCard last month from "buy" to "hold."
"If it wasn't for the legal issues, the IPO would have been priced much higher," he said. The run-up has been "just an adjustment. In the absence of further discussions regarding legal issues," the stock has "traded off its fundamentals."
But the legal liability overhanging the Purchase, N.Y., company is significant, he said. "I think any discussion" of the lawsuits, "unless it's a discussion of dropping the case, would be a short-term negative on the stock."
MasterCard generates revenue by charging fees for the transactions that run on its network, not from making loans, and Mr. Maurer said this setup attracted investors looking for a safer way to bet on the U.S. consumer. The company also benefits from growth potential overseas, he said. However, he asserted that the stock will take a breather from its run.
Elizabeth Grausam at Goldman, Sachs & Co. downgraded MasterCard on Monday from "neutral" to "sell," calling it "overvalued."
The company is to report third-quarter earnings on Nov. 1. The average of analysts' profit estimates is $1.08 per share.
MasterCard could beat that estimate, Ms. Grausam wrote, on fees it charges for converting currencies. Summer travel usually makes the third quarter a big one for such fees. But she said those giving "increasingly optimistic" outlooks could be disappointed.
Bruce Cundiff, an analyst at Javelin Strategy and Research, attributed some of the run-up to "the fact that investors have really positive feelings about future growth of the business. It's also the positive numbers and the announcements that MasterCard is catering to different stakeholders."
In its second-quarter earnings report, its first as a public company, MasterCard posted better-than-expected revenues. Last month it said it would publish its interchange fees, satisfying one merchant demand.
