MasterCard (MA) Up 3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for MasterCard (MA). Shares have added about 3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Mastercard Q4 Earnings Beat on Steady Consumer Spending
Mastercard reported fourth-quarter 2023 adjusted earnings of $3.18 per share, which outpaced the Zacks Consensus Estimate by 3.3%. The bottom line climbed 20% year over year.
Net revenues of the leading technology company in the global payments industry amounted to $6.5 billion, which improved 13% year over year in the quarter under review. The top line beat the consensus mark by 1.4%.
The quarterly results benefited on the back of resilient consumer spending and solid cross-border volumes. An expanding payment network, and value-added services and solutions also contributed to the quarterly results. However, the upside was partly offset by an increase in operating expenses.
Q4 Operational Performance
Gross dollar volume (representing the aggregated dollar amount of purchases made and cash disbursements obtained from Mastercard-branded cards) rose 10% on a local-currency basis to $2.4 trillion in the fourth quarter. The figure almost touched the Zacks Consensus Estimate and surpassed our estimate of $2.3 trillion.
Cross-border volumes (a key measure that tracks spending on cards beyond the issuing country) advanced 18% on a local currency basis. Switched transactions, which indicate the number of times a company’s products have been used to facilitate transactions, were 38.1 billion in the quarter under review. The figure grew 12% year over year and beat the consensus mark of 37.6 billion.
Value-added services and solutions net revenues of $2.7 billion improved 19% year over year and came higher than the Zacks Consensus Estimate of $2.5 billion and our estimate of $2.4 billion. The growth can be attributed to the strength in cyber and intelligence solutions along with the enhancement of its consulting, marketing, data analytics and loyalty solutions.
Payment network rebates and incentives escalated 19% year over year in the fourth quarter as an impact of new and renewed deals.
Mastercard’s clients issued 3.3 billion Mastercard and Maestro-branded cards as of Dec 31, 2023.
Operating expenses of $3.2 billion increased 21% year over year due to an elevated personnel cost level. The figure was higher than our estimate of $2.9 billion.
Mastercard’s operating income advanced 6% year over year to $3.4 billion but fell short of our estimate of $3.6 billion. Operating margin of 51.5% improved 320 basis points year over year in the quarter under review.
Balance Sheet (as of Dec 31, 2023)
Mastercard exited the fourth quarter with cash and cash equivalents of $8.6 billion, which increased 22.5% from the 2022-end level. The figure is way higher than the current portion of long-term debt ($1.3 billion).
Total assets of $42.4 billion grew 9.6% from the figure at 2022 end.
Long-term debt amounted to $14.3 billion, up 4.3% from the figure as of Dec 31, 2022.
Total equity of $7 billion improved 9.7% from the 2022-end level.
Solid Cash Flows
Mastercard generated cash flows from operations of $12 billion in 2023, which advanced 7% from the 2022 figure.
Capital Deployment Update
Mastercard bought back 4.5 million shares for $1.8 billion in the fourth quarter. It had a leftover buyback capacity of $13.6 billion as of Jan 26, 2024. Mastercard paid out dividends worth $534 million in the quarter under review.
1Q24 Guidance
Management projects net revenues to register low-end of low-double-digit growth on a year-over-year basis in the first quarter of 2024, while GAAP operating expenses are anticipated to record a minimum year-over-year growth.
2024 View
Management forecasts net revenue growth to witness the high-end of low-double-digit growth from the 2023 reported figure of $25.1 billion. GAAP operating expenses are estimated to increase in mid-single-digit from the 2023 figure of $11.1 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, MasterCard has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, MasterCard has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
MasterCard is part of the Zacks Financial Transaction Services industry. Over the past month, Bread Financial Holdings (BFH), a stock from the same industry, has gained 5.4%. The company reported its results for the quarter ended December 2023 more than a month ago.
Bread Financial reported revenues of $1.02 billion in the last reported quarter, representing a year-over-year change of -1.6%. EPS of $0.90 for the same period compares with -$2.68 a year ago.
For the current quarter, Bread Financial is expected to post earnings of $3.19 per share, indicating a change of -64.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Bread Financial. Also, the stock has a VGM Score of A.
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Mastercard Incorporated (MA) : Free Stock Analysis Report
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