What's in Store for Mastercard (MA) This Earnings Season?

Mastercard Inc. MA is set to release fourth-quarter 2020 and full-year earnings on Jan 28, before market open.

In the last reported quarter, earnings of $1.60 per share missed the Zacks Consensus Estimate by 3.03% and also declined 25% year over year. The bottom line suffered from lower switched transactions and weak cross-border business.

Factors Impacting Q4 Results

Mastercard’s earnings in the to-be-reported quarter are likely to have gained from steady levels of spending as most of the markets that the company operates in are gradually recovering.

The company is likely to report an increase in Switched Volume, which measures the number of times the company’s products were used to facilitate transactions. The metric has continued to show an improving trend since the beginning of May, partly owing to the relaxation of social-distancing measures in several markets and the impact of stimulus on the US economy. This trend is likely to have continued in the fourth quarter as well.

Management announced that overall growth in switched volumes rose 3% in the week ended Nov 21, primarily driven by higher contribution from the United States (up 6%) than the rest of the world, which was up merely 1%.
Business growth in the United States was attributable to the recent strength in holiday retail spend, notably in electronics. These upsides are likely to have continued in the December quarter too. In Europe, more stringent social-distancing norms are likely to have caused a decline in restaurant, lodging and retail spending, a trend that most likely continued in the to-be-reported period.

Card not present transaction volume is likely to have expanded against a slight reduction in card present volume in the final quarter of 2020 as people now prefer more contactless modes of payment to avoid any physical contact.

Switched Transactions (defined as the number of transactions initiated and switched through the company’s network during the period) might have slowed down during the quarter under review, attributable to a decrease in card present activity, partially offset by faster growth in larger-ticket card not present transactions.

Mastercard’s cross-border volumes are likely to have remained sluggish as lower-yielding intra-Europe volume is expected to have increased in card not present volume, offset by a modest drop in card present volume.
In the to-be-reported quarter, expenses are expected to have declined owing to reduced spending on advertising and marketing, travel and professional fees, partially offset by higher personnel costs to support continued investments in the company’s strategic initiatives.
Acquisition Closure: Key Takeaway From Q4

In the quarter to be reported, the company closed its buyout of Finicity for $825 million, a leading North American provider of real-time access to financial data and insights. The deal will likely expand the company’s reach in open banking, an area in which it has been too keen to grow for a while now.

Q4 Earnings & Revenue Expectations

The Zacks Consensus Estimate for Mastercard’s fourth-quarter earnings of $1.52 per share indicates a 22.46% decline from the prior-year period’s reported number. Likewise, the consensus estimate for sales of $4.02 billion suggests a 9.03% decrease from the year-ago quarter’s reported figure.

Earnings Surprise History

The company boasts an attractive earnings surprise track. Its bottom line beat estimates in three of the last four quarters (missed in one), the average surprise being 6.61%. This is depicted in the chart below:

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated price-eps-surprise | Mastercard Incorporated Quote

Here is what our quantitative model predicts:

Our proven model does not predict an earnings beat for Mastercard this time around. The combination of a positive  Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: Mastercard has an Earnings ESP of -1.99%.

Zacks Rank: Mastercard currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Some stocks worth considering with the apt combination of elements to surpass estimates this reporting cycle are as follows:

AXOS FINANCIAL Inc. AX has an Earnings ESP of +4.94% and is presently Zacks #3 Ranked. You can see the complete list of today’s Zacks #1 Rank stocks here.

Houlihan Lokey, Inc. HLI currently has a Zacks Rank #2 and an Earnings ESP of +5.40%.

Moodys Corporation MCO has an Earnings ESP of +3.78% and is a #3 Ranked player, presently.

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