We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Mastercard (MA) Stock Before Q2 Earnings: Buy, Sell, or Hold?
Read MoreHide Full Article
Mastercard Incorporated (MA - Free Report) is set to report second-quarter 2024 results on Jul 31, 2024, before the opening bell. Factors such as expanding cross-border transactions, growth in Gross Dollar Volume (GDV) and increased processed transactions are expected to bolster its performance.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $3.51 per share, implying solid growth of 21.5% from the year-ago reported number. The estimate remained stable over the past week. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $6.9 billion, indicating a 9.3% uptick from the year-ago actuals.
Image Source: Zacks Investment Research
Mastercard beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 3.4%. This is depicted in the graph below:
Our proven model does not conclusively predict an earnings beat for MA 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. That is not the case here.
The company has an Earnings ESP of -0.19%. This is because the Most Accurate Estimate currently stands at $3.50 per share, lower than the Zacks Consensus Estimate of $3.51. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Mastercard is expected to have witnessed an increase in second-quarter revenues, driven by increased spending in the travel and entertainment sectors. The Gross Dollar Volume (GDV), reflecting the value of transactions on Mastercard-branded cards, is expected to have benefited from increased card usage, both domestically and internationally, in the upcoming quarter.
The Zacks Consensus Estimate for the company’s total GDV for all MA-branded programs suggests a 10% rise from the prior-year quarter’s reported figure, whereas our model predicts a 10.5% increase. We expect GDV from domestic operations to increase by almost 7% year over year and nearly 12% in international operations. Growing strength in Latin American and European operations is likely to have driven the metric.
Processed transactions are expected to have experienced an upsurge, driven by resilient consumer spending and increased contactless acceptance initiatives pursued by the payment technology company. The Zacks Consensus Estimate for its processed transactions indicates a 10.1% rise from the prior-year quarter’s reported figure, whereas our estimate suggests a 9% increase.
Rebounding cross-border travelis anticipated to have had a positive impact on Mastercard's cross-border volumes. The consensus estimate for cross-border assessments suggests an increase of 16.2% compared with the previous year, while our projection indicates growth of 19.3%. Further, our model predicts domestic assessments and transaction processing assessments to witness a 12.5% and 8.3% year-over-year increase, respectively. The consensus estimate for domestic and transaction processing assessments indicates a rise of 8.7% and 10.3% year over year in the second quarter, respectively.
The Zacks Consensus Estimate for Value-added Services and Solutions net revenue implies growth of 16.8% year over year in the second quarter. We expect the metric to grow 16.3% year over year in the same period. Continued demand for its consulting and marketing services and loyalty solutions is likely to have driven this metric.
However, it is likely that the company also incurred higher costs, as well as higher rebates and incentives in the June quarter, which could partially offset these positive developments.
Mastercard’s adjusted operating costs are likely to have increased in the second quarter due to higher G&A costs and Advertising & Marketing expenses, potentially hampering its profitability. We expect total adjusted operating expenses to increase 10.2% from the prior-year quarter’s actuals.
Furthermore, our estimate for payments network rebates and incentives suggests a 20.5% year-over-year increase. Foreign exchange impact is likely to have affected the segment in the second quarter.
Price Performance & Valuation
Mastercard’s stock has exhibited an upward movement in the year-to-date period. MA rose 3.5%, outperforming its industry’s rise of 2.6%. In comparison, its peers like American Express Company (AXP - Free Report) and Capital One Financial Corporation (COF - Free Report) have gained 31.7% and 13.5%, respectively, during the same time frame. However, Mastercard lagged the S&P 500, which rallied 14.6% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Mastercard offers investors at current levels.
The company’s valuation looks somewhat stretched compared with the industry average. Currently, MA is trading at 28.3X forward 12 months earnings, above the industry’s average of 21.65X.
Image Source: Zacks Investment Research
In comparison, American Express is trading at 17.32X forward 12 months earnings. Capital One Financial, on the other hand, is trading at 10.14X, offering a better value at the moment.
Investment Thesis
Mastercard’s tremendous growth opportunity, backed by its technology upgrades, product diversification, geographic expansion, strategic acquisitions and alliances, position it well for long-term growth. So far, resilient consumer spending and rebounding domestic and international economies have propelled its bottom line. With a strong cash position and consistent cash flow generation, Mastercard remains well-positioned for strategic investments, including share buybacks and dividends. However, the expected decline in consumer spending growth is likely to impact its transaction revenues in the future. Constrained spending growth in discretionary items could also limit the stock’s short-term performance. Investors should closely monitor these factors.
Conclusion
While Mastercard has demonstrated a strong trailing 12-month performance and promising growth prospects, the expected slowdown in consumer spending growth, rising costs, and stretched valuation suggest that a cautious approach is prudent. Monitoring upcoming earnings results will be crucial for making informed investment decisions. Current MA shareholders can maintain their positions, but new investors may want to wait for a more favorable entry point.
Image: Bigstock
Mastercard (MA) Stock Before Q2 Earnings: Buy, Sell, or Hold?
Mastercard Incorporated (MA - Free Report) is set to report second-quarter 2024 results on Jul 31, 2024, before the opening bell. Factors such as expanding cross-border transactions, growth in Gross Dollar Volume (GDV) and increased processed transactions are expected to bolster its performance.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $3.51 per share, implying solid growth of 21.5% from the year-ago reported number. The estimate remained stable over the past week. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $6.9 billion, indicating a 9.3% uptick from the year-ago actuals.
Image Source: Zacks Investment Research
Mastercard beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 3.4%. This is depicted in the graph below:
Mastercard Incorporated Price and EPS Surprise
Mastercard Incorporated price-eps-surprise | Mastercard Incorporated Quote
Q2 Earnings Whispers
Our proven model does not conclusively predict an earnings beat for MA 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. That is not the case here.
The company has an Earnings ESP of -0.19%. This is because the Most Accurate Estimate currently stands at $3.50 per share, lower than the Zacks Consensus Estimate of $3.51. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Mastercard currently carries a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Q2 Results
Mastercard is expected to have witnessed an increase in second-quarter revenues, driven by increased spending in the travel and entertainment sectors. The Gross Dollar Volume (GDV), reflecting the value of transactions on Mastercard-branded cards, is expected to have benefited from increased card usage, both domestically and internationally, in the upcoming quarter.
The Zacks Consensus Estimate for the company’s total GDV for all MA-branded programs suggests a 10% rise from the prior-year quarter’s reported figure, whereas our model predicts a 10.5% increase. We expect GDV from domestic operations to increase by almost 7% year over year and nearly 12% in international operations. Growing strength in Latin American and European operations is likely to have driven the metric.
Processed transactions are expected to have experienced an upsurge, driven by resilient consumer spending and increased contactless acceptance initiatives pursued by the payment technology company. The Zacks Consensus Estimate for its processed transactions indicates a 10.1% rise from the prior-year quarter’s reported figure, whereas our estimate suggests a 9% increase.
Rebounding cross-border travelis anticipated to have had a positive impact on Mastercard's cross-border volumes. The consensus estimate for cross-border assessments suggests an increase of 16.2% compared with the previous year, while our projection indicates growth of 19.3%. Further, our model predicts domestic assessments and transaction processing assessments to witness a 12.5% and 8.3% year-over-year increase, respectively. The consensus estimate for domestic and transaction processing assessments indicates a rise of 8.7% and 10.3% year over year in the second quarter, respectively.
The Zacks Consensus Estimate for Value-added Services and Solutions net revenue implies growth of 16.8% year over year in the second quarter. We expect the metric to grow 16.3% year over year in the same period. Continued demand for its consulting and marketing services and loyalty solutions is likely to have driven this metric.
However, it is likely that the company also incurred higher costs, as well as higher rebates and incentives in the June quarter, which could partially offset these positive developments.
Mastercard’s adjusted operating costs are likely to have increased in the second quarter due to higher G&A costs and Advertising & Marketing expenses, potentially hampering its profitability. We expect total adjusted operating expenses to increase 10.2% from the prior-year quarter’s actuals.
Furthermore, our estimate for payments network rebates and incentives suggests a 20.5% year-over-year increase. Foreign exchange impact is likely to have affected the segment in the second quarter.
Price Performance & Valuation
Mastercard’s stock has exhibited an upward movement in the year-to-date period. MA rose 3.5%, outperforming its industry’s rise of 2.6%. In comparison, its peers like American Express Company (AXP - Free Report) and Capital One Financial Corporation (COF - Free Report) have gained 31.7% and 13.5%, respectively, during the same time frame. However, Mastercard lagged the S&P 500, which rallied 14.6% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Mastercard offers investors at current levels.
The company’s valuation looks somewhat stretched compared with the industry average. Currently, MA is trading at 28.3X forward 12 months earnings, above the industry’s average of 21.65X.
Image Source: Zacks Investment Research
In comparison, American Express is trading at 17.32X forward 12 months earnings. Capital One Financial, on the other hand, is trading at 10.14X, offering a better value at the moment.
Investment Thesis
Mastercard’s tremendous growth opportunity, backed by its technology upgrades, product diversification, geographic expansion, strategic acquisitions and alliances, position it well for long-term growth. So far, resilient consumer spending and rebounding domestic and international economies have propelled its bottom line. With a strong cash position and consistent cash flow generation, Mastercard remains well-positioned for strategic investments, including share buybacks and dividends. However, the expected decline in consumer spending growth is likely to impact its transaction revenues in the future. Constrained spending growth in discretionary items could also limit the stock’s short-term performance. Investors should closely monitor these factors.
Conclusion
While Mastercard has demonstrated a strong trailing 12-month performance and promising growth prospects, the expected slowdown in consumer spending growth, rising costs, and stretched valuation suggest that a cautious approach is prudent. Monitoring upcoming earnings results will be crucial for making informed investment decisions. Current MA shareholders can maintain their positions, but new investors may want to wait for a more favorable entry point.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.