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Mastercard (MA) to Report Q3 Earnings: Is a Beat in Store?

Zacks Equity Research

Mastercard Incorporated MA is set to report third-quarter 2019 earnings results on Oct 29.

The Zacks Consensus Estimate for the quarter to be reported is earnings of $2.01 per share on revenues of $4.42 billion, which indicates year-over-year growth of 12.92% and 13.5%, respectively.

In the last reported quarter, the company surpassed estimates by 3.9% 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 driven the company's gross dollar value (GDV), which measures dollar value of total transactions processed. The Zacks Consensus Estimate for GDV is pegged at $1.64 trillion, indicating an  11.6% increase year over year. This growth in GDV is likely to have been driven by credit and debit growth of 13.3% and 13%, respectively.

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.

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

Company’s Guidance

For the third quarter, the company’s guidance calls for increase at a low-teens rate for net revenues because of a sequential increase in deal activity as well as moderation of services growth versus a very strong second quarter. Foreign exchange is likely to be a 1% to 2% headwind to revenues for the quarter.

In addition, acquisitions are likely to add about 1% to third-quarter revenue growth. Operating expenses on a currency-neutral basis are expected to increase in the mid-teens year over year due to the timing of marketing spend, which was more weighted to the third quarter this year, as the company continued to promote contactless usage and invest in sponsorships.

Year over year, foreign exchange will likely be the tailwind to operating expenses of about 1% for the third quarter. In addition, management expects acquisitions to add about 5% to third-quarter operating expense growth.

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters with an average beat of 4.59%. 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 #3 and has an Earnings ESP of 0.00%. 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.

FleetCor Tecnologies FLT has an Earnings ESP of +0.78% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fidelity National Information Services, Inc. FIS has an Earnings ESP of +.13% and a Zacks Rank #3.

Voya Financial, Inc. VOYA has an Earnings ESP of +0.05% and a Zacks Rank of 3.

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