MasterCard (MA) Up 2.3% Since Last Earnings Report: Can It Continue?

It’s been a month since MasterCard’s (MA) last earnings report. Shares have risen about 2.3% in that time, outperforming the S&P 500.

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

Mastercard’s third-quarter earnings beat estimates for volume growth

Mastercard Incorporated reported adjusted earnings per share of $1.78, surpassing the Zacks Consensus Estimate by 5.95%. Profits increased by 33% year-on-year. The improvement in revenues translated into an increase in profits.

The better-than-expected results were mainly due to a higher number of swap transactions, an increase in cross-border and gross volume, and profits from acquisitions. Part of the limitation was the year-on-year increase in rebates and incentives.

High operational efficiency

Mastercard’s revenues of $3.9 billion surpassed the Zacks Consensus Estimate by 0.9%. Revenues increased by 17% year over year (currency neutral assumption).

Total adjusted operating expenses increased 10% to $1.6 billion due to higher general and administrative expenses, advertising and marketing expenses and investments made for growth.

Interest expense of $48 million increased 37% year-over-year.
Operating margin increased 230 basis points to 59.4%.

Gross dollar volume increased 13% while purchase volume increased 15%.
The company’s margins improved thanks to a lower tax rate of 16.1% in the third quarter compared to 26% in the year-ago quarter.

As of September 30, 2018, the company’s customers had issued 2.5 billion Mastercard and Maestro branded cards, after taking into account the impact of deconsolidation in Venezuela.

Financial update

As of September 30, 2018, cash and cash equivalents amounted to USD 6.87 billion, an increase of 15.8% compared to the level at the end of 2017. Long-term debt amounted to USD 5.86 billion, an increase of 7.4% compared to the level at the end of 2017.

Share buyback and dividend payment

During the reported quarter, Mastercard repurchased $1.2 billion of stock and returned $260 million in dividends.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

VGM results

Currently, MasterCard has a solid Growth Score of B, although it lags well behind its Momentum Score of D. Following the exact same trajectory, the stock is rated D on Value, placing it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, MasterCard carries a Zacks Rank #2 (Buy). We expect an above-average rate of return on shares in the coming months.

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