Will Mastercard (MA) Q4 Earnings Gain From Higher Spending?

Mastercard Incorporated MA is set to report fourth-quarter 2019 results on Jan 29.

The Zacks Consensus Estimate for the company’s earnings per share is pegged at $1.87, indicating an increase of 20.65% year over year. The consensus mark for revenues is pegged at $4.4 billion, suggesting a rise of 15.6%.

In the last reported quarter, the company surpassed estimates by 6.97% driven by higher switched transactions, increase in cross-border volume and gross dollar volume, and gains from acquisitions. An increase in rebates and incentives year over year was a partial dampener.

Factors at Play

Mastercard's performance for the to-be-reported quarter is expected to have benefited from increase in retail spending, driven by favorable retail sales. This is likely to have boosted the company's gross dollar value (GDV), which measures the dollar value of total transactions processed. The Zacks Consensus Estimate for GDV is pegged at $1.72 trillion, indicating a rise of 11.5% year over year. This growth in GDV is likely to have been driven by credit and debit increase of 10.2% and 10.6%, respectively.

We expect to see growth in cross border volume as the company is expanding its operations internationally with several partnerships and tie-ups.  The Zacks Consensus Estimate for cross border GDV is pegged at $1.23 trillion, indicating a 13.8% increase year over year.

The company is likely to report healthy double-digit volume and transaction growth across most of its markets due to a strong shift to electronic forms of payment.

The quarter under review is likely to have witnessed growth in switched transactions due to the fast adoption of contactless payments by customers.

Revenues are likely to have improved due to service offerings, partially offset by higher rebates and incentives.

Operating expenses are expected to have increased due to continued investments in strategic initiatives such as digital enablement, safety and security, and geographic expansion.

Company’s Guidance

For 2020, the company’s guidance calls for increase at a high end of low-teens rate for net revenues.  Acquisitions will add about half a percentage point to this revenue growth. Also, due to a stronger U.S. dollar, the company expects foreign exchange to present a 3 percentage points headwind to full-year revenues.

Regarding operating expenses, the company expects growth at the high end of high single digits for the year, on a currency-neutral basis, excluding acquisitions and special items. In addition, management expects acquisitions to add about 3% to operating expense growth. Foreign exchange is likely to be a 2% tailwind to operating expenses.

Earnings Surprise History

The company boasts an attractive earnings surprise history. Mastercard surpassed estimates in the trailing four quarters, the beat being 4.84%, on average. 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 doesn’t conclusively 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 odds of an earnings beat. But that’s not the case here.

Mastercard carries a Zacks Rank #2 but has an Earnings ESP of -1.07%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are a few stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release.

Global Payments Inc. GPN has an Earnings ESP of +3.15% and a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Square, Inc. SQ has an Earnings ESP of +6.14% and a Zacks Rank #3.

Fidelity National Information Services, Inc. FIS has an Earnings ESP of +0.45% and a Zacks Rank #2.

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