Mastercard (MA) to Post Q2 Earnings: What Awaits the Stock?

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Mastercard Inc. MA is set to release second-quarter 2020 earnings on Jul 30, before market open. In the last reported quarter, the company’s earnings beat estimates by 6.4% on higher switched transactions, increase in gross dollar volume and gains from acquisitions. Rise in rebates and incentives plus a decrease in […]

Mastercard Inc. MA is set to release second-quarter 2020 earnings on Jul 30, before market open.

In the last reported quarter, the company’s earnings beat estimates by 6.4% on higher switched transactions, increase in gross dollar volume and gains from acquisitions. Rise in rebates and incentives plus a decrease in cross-border volume were a partial dampener.

Factors Likely to Impact Q2 Results

Switched Volume, which represents the number of times the company products were used to facilitate transactions, continues 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. Switched Transactions trends are likely to have been similar to Switched Volumes.

The company is also likely to have seen better card present growth rates including a steady uptick in discretionary categories, such as clothing, gas, home improvement, restaurants, auto and domestic travel. Card not present growth rates are too expected to have stayed healthy as people preferred digital methods of payment to avoid physical contact.

From a geographic perspective, the company recently reported a year-over-year growth rate in the United States as well as in certain markets across Europe, the Asia Pacific and the Middle East Africa.

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 second quarter, the company expected services growth to outperform its core products. The Zacks Consensus Estimate for services revenues is pegged at $2.44 billion, implying a 1.5% rise from the prior-year reported figure.

Cross-border volume is expected to have expanded modestly, primarily on higher frequency in intra-Europe travel, which would have remained low otherwise. With respect to this metric, card not present growth for transactions might have been more resilient than growth in card present.

Additionally, the company is likely to have seen a spurt in online travel-related spend, which accounted for roughly a third of card not present cross-border volume in 2019, primarily due to an increase in intra-Europe travel. However, the same is likely to lag on a year-over-year basis. The Zacks Consensus Estimate for international transaction revenues — dependent on cross-border volumes — is pegged at $1.27 billion, hinting at a 36% plunge from the year-ago quarter’s reported figure.

The company halted its share buyback activity recently due to the uncertain financial impact from COIVD-19  and  thus, the bottom line will be bereft of the cushion provided by share repurchases.

Earnings & Revenue Expectations   

The Zacks Consensus Estimate for Mastercard’s second-quarter earnings of $6.48 per share indicates a 16.6% decline from the prior-year reported number. Likewise, the consensus estimate for sales of $15.53 billion suggests an 8.04% 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 5.51%. 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

What Our Model Says

Our proven model does not 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 chances of an earnings beat. But that is not the case here as elaborated below. 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 -0.40%.

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

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