Will Higher Digital Spending Aid Mastercard (MA) Q3 Earnings?

Zacks Equity Research
·4 min read

Mastercard Inc. MA is set to release third-quarter 2020 earnings on Oct 28, before market open.

In the last reported quarter, earnings of $1.36 per share beat the Zacks Consensus Estimate by 18.3% but were down 26% year over year due to a contraction in gross dollar volume, lower switched transactions and a weak cross-border business. However, decreased rebates and incentives aided the bottom line to some extent.

Factors Likely to Impact Q3 Results

Switched Volume, which represents the number of times the company products were used to facilitate transactions, has continued to show an improving trend since the beginning of May, partly owing to the further relaxation of social-distancing measures in several markets and the impact of fiscal stimulus in the United States following the coronavirus outbreak.

The company is also seeing a steady uptick in travel and entertainment-related categories, such as lodging, restaurants, auto rental and gas. Card not present growth rates are too expected to have stayed healthy as people preferred digital methods of payment to avoid physical contact.

The company announced that from a geographic perspective, Switched volumes, in all regions outside the United States expanded from July to August. There are now countries showing year-over-year growth rates in each region including Brazil, United Arab Emirates and South Africa among others.

Switched Transactions trends are similar to those in Switched Volume including increased growth in transactions outside the United States.
Moreover, Mastercard is likely to have experienced strong demand for its Data & Analytics and Cyber solutions in the quarter to be reported as its customers and partners move from analyzing and understanding the crisis to taking proactive steps to mitigate its effects. For the third quarter, the company expected services growth to outperform its core products.

Cross-border volume is likely to have exhibited modest growth since early July with progress in each region. Intra-Europe travel growth is expected to have consistently outpaced other cross-border volumes as border restrictions were eased in Europe ahead of other locations.

The company halted its share buyback activity recently due to financial uncertainty stemming from COIVD-19 and thus the bottom line might have been bereft of the cushion provided by share repurchases.

Earnings & Revenue Expectations  

The Zacks Consensus Estimate for Mastercard’s third-quarter earnings of $1.64 per share indicates a 23.72% decline from the prior-year reported number. Likewise, the consensus estimate for sales of $3.94 billion suggests an 11.79% decrease from the year-ago reported figure.

Earnings Surprise History

The company boasts an attractive earnings surprise track. Its bottom line beat estimates in each of the last four quarters, the average being 9.11%. This is depicted in the chart below.

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated Price and EPS Surprise
Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated price-eps-surprise | Mastercard Incorporated Quote

What Our Model Says

Our proven model predicts 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 as we can see 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 +2.26%.

Zacks Rank: Mastercard currently has a Zacks Rank #3.

Other Stocks to Consider

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

Visa Inc. V has an Earnings ESP of +0.30% and a Zacks Rank of 3, currently.

PayPal Holdings, Inc. PYPL has an Earnings ESP of +1.14% and is Zacks #3 Ranked, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Payments Inc. GPN has an Earnings ESP of +1.29% and is a #3 Ranked player at present.

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