MasterCard (MA) Up 0.2% Since Last Earnings Report: Can It Continue? – May 31, 2024

It’s been about a month since MasterCard’s last earnings report (MOM – Free Report). Shares rose about 0.2% in that time, underperforming 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 Q1 Earnings Beat Spending Level as Spending Stable, Views Cut in 2024

Mastercard reported strong first-quarter 2024 results driven by stable consumer spending and solid cross-border volumes. Despite higher-than-average inflation and a high-interest rate environment, higher card spending by U.S. consumers continues to support Mastercard’s performance. The quarterly results were also influenced by the developing payment network and value-added services and solutions.

However, this increase was partially offset by an increase in operating costs. Investors may also be concerned about lower revenue forecasts. Moreover, the recent appreciation of the US dollar is expected to pose a challenge to foreign exchange, turning it into a headwind.

Mastercard reported first-quarter 2024 adjusted earnings of $3.31 per share, which was 2.8% ahead of the Zacks Consensus Estimate. The financial result increased by 18% year on year.

The leading technology company in the global payments industry had net revenue of $6.3 billion, up 10% year over year in the quarter. The top line beat the consensus by 0.4%.

First quarter operating performance

Gross dollar volume (representing the aggregate dollar amount of purchases and cash withdrawals made using Mastercard cards) increased 10% in local currency to $2.3 trillion in the first quarter. This number missed the Zacks Consensus Estimate by 2.5%.

Cross-border volumes (a key metric tracking card spending outside the card-issuing country) increased 18% in local currency terms. Swap transactions, which indicate the number of times a company’s products were used to facilitate transactions, totaled 36.7 billion in the quarter under review. This number increased by 13% year over year and exceeded the consensus estimate by 2.2% and our estimate by 3.8%.

Value-added services and solutions net revenue of $2.4 billion increased 16% year-over-year and exceeded our model estimate of $2.3 billion. The growth can be attributed to continued demand for consulting and marketing services, loyalty solutions, as well as fraud and security capabilities.

Payment network discounts and incentives increased 20% year-over-year in the first quarter, driven by new and renewed contracts.

Mastercard customers have issued 3.4 billion Mastercard and Maestro branded cards as of March 31, 2024.

Adjusted operating expenses of $2.6 billion increased 9% year-over-year due to increased general and administrative expenses and were in line with our estimates.

MA operating income increased 15% year-over-year to $3.6 billion, but was below our estimate of $3.7 billion. Operating margin of 56.8% increased 220 basis points year-over-year in the quarter.

Financial situation (as of March 31, 2024)

Mastercard ended the first quarter with cash and cash equivalents of $7.3 billion, up from the end-2023 level of $8.6 million. This number is significantly higher than short-term debt ($2.1 billion).

Total assets of $42.6 billion increased from $42.4 billion at end-2023.

Long-term debt was $13.5 billion, up from $14.3 billion as of March 31, 2023.

Total equity of $7.3 billion increased from $7 billion at end-2023.

Mastercard generated operating cash flow of $1.7 billion in the first quarter, down from $1.9 billion a year ago.

Capital deployment update

In the first quarter, Mastercard repurchased 4.4 million shares for $2 billion. As of April 26, 2024, the company had residual repurchase capacity of $11.3 billion. In the quarter through April 26, it repurchased another 1.7 million shares for $815 million. Mastercard paid $616 million in dividends during the quarter.

Guidance 2Q24

Management expects net revenues to top out at high single-digit year-over-year growth in the second quarter of 2024, while adjusted operating expenses will top out at high single-digit growth as well.

View 2024

Management currently expects net revenue growth to bottom out at double-digit growth compared to the reported $25.1 billion for 2023. He previously expected the top end of low-double-digit growth. Adjusted operating costs are expected to grow in the low-to-double-digit range from $10.6 billion in 2023.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month.

VGM results

Meanwhile, MasterCard has an average Growth Score of C, although it lags slightly behind its Momentum Score of D. Following the exact same trajectory, the stock was rated D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of D. 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 #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

MasterCard belongs to the Zacks Financial Transaction Services industry. Another stock in the same industry, Equifax (EFX – Free Report) has gained 2.3% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Equifax reported revenue of $1.39 billion, representing a year-over-year change of +6.7%. EPS of $1.50 in the same period compared to $1.43 a year ago.

Equifax is expected to report earnings per share of $1.72 for the current quarter, representing a year-over-year change of +0.6%. Over the past 30 days, the Zacks Consensus Estimate has moved -0.1%.

Equifax carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM rating of B.

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