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MasterCard (MA) Up 18.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for MasterCard (MA). Shares have added about 18.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MasterCard due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Mastercard's Q2 Earnings Beat Estimates

Mastercard Inc.’s second-quarter 2020 earnings of $1.36 per share beat the Zacks Consensus Estimate by 18.3%. However, the bottom line declined 26% year over year.

The year-over-year downside was due to a contraction in gross dollar volume, lower switched transactions and a weak cross-border business. However, decreased rebates and incentives helped earnings to some extent.

Mastercard’s revenues of $3.3 billion beat the Zacks Consensus Estimate by 2.3% but fell 17% on a currency-neutral basis. Total adjusted operating expenses declined 5% to $1.6 billion owing to a dip in advertising and marketing, travel and professional fee spend.

Adjusted operating margin of 51.8% was down 600 basis points year over year.

Gross dollar volume was down 10% to $1.4 trillion while cross-border volumes plunged 45% on a local-currency basis.

Switched transactions, which indicate the number of times a company’s products were used to facilitate transactions, declined 10% year over year.

Share Repurchase and Dividend Payout

During the second quarter, Mastercard paid $401 million in dividends. The company resumed its share buyback program at the end of the second quarter. Quarter to date through Jul 27, the company bought back shares worth $1.0 billion, leaving $5.9 billion under the current repurchase authorization.

Balance Sheet Position

The company’s long-term debt as of Jun 30, 2020 was $12.5 billion, up 46% from the level as of Dec 31, 2019 because a $4-billion long-term debt was issued in March.  However, cash and cash equivalents of $11.1 billion soared 59.4% from the level as of Dec 31, 2019.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, MasterCard has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MasterCard has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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