Thursday, October 31, 2013

Mastercard Inc (MA) Q3 Earnings Preview: What To Expect?

MasterCard Incorporated (NYSE: MA) will release its third-quarter financial results on Oct.31. The company will host a conference call to discuss these results at 9:00 a.m. Eastern Time.

MasterCard is a global payment processing leader and one of the largest global payment solutions companies. The company's payments processing network, connects consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories.

Wall Street expects the payment processing firm to earn $6.94 a share, according to analysts polled by Thomson Reuters. The consensus estimate implies growth of 12.5 percent from $6.17 a share earned last year.

Mastercard has always impressed Street with its consistent upside surprises and its earnings have managed to edge past estimates in all of the past four quarters. The beat margins were in the range of 0.80 percent to 10.5 percent.

Over the past 90 days, the average earnings estimate has gone up by 2 cents, and six analysts raised their earnings view on the company in the past 30 days. This suggests analysts are expecting a bullish quarter from the company.

Quarterly sales are expected to grow 11.2 percent to $2.13 billion from $1.92 billion in the same quarter last year. In the past four quarters, average revenue growth came in at 9.5 percent.

Mastercard results should benefit from an improving consumer spending environment. Like its peer Visa, Inc. (NYSE:V), Mastercard continue to reap profit as more consumers now prefer electronic payments instead of cash and checks, notwithstanding the uncertain economic conditions that slowed growth.

Earnings of credit card processors are one of the key barometers to gauge consumer spending. During the first two months of the quarter, the consumer sentiment fared well but diminished in the month of September due to the government shutdown that curbed spending.

In August, consumer spending in the U.S. rose 0.3 percent in August, according to the Commerc! e Department while incomes rose 0.4 percent. However, several surveys show that consumers suffered during the later periods of the quarter.

Confidence fell in September as consumers were more likely to anticipate a slower pace of economic growth, fewer job opportunities, and less favorable personal financial prospects, according to a survey by Thomson Reuters/University of Michigan. The index fell to 77.5 in September from 82.1 in August and last September's 78.3.

Meanwhile, investors will be watching for certain performance metrics including payments volume growth, processed transactions and cross-border volume growth, which reflects the company's strength in emerging markets.

For the second quarter, MasterCard reported 13 percent increase in gross dollar volume, on a local currency basis, to just over $1 trillion. Cross-border volumes rose 17 percent and processed transactions increased 11 percent to 9.5 billion. These factors were partially offset by an increase in rebates and incentives.

Worldwide purchase volume during the second quarter grew 12 percent on a local currency basis to $734 billion. As of June 30, 2013, the company's customers had issued 1.9 billion MasterCard and Maestro-branded cards.

The Street and investors will focus on updated guidance, macro view/global commentary and color on volume and transaction growth into July. In addition, they will look at cross-border trends and pricing rebates.

Purchase, New York-based MasterCard is a credit transaction processing company, which means it need not worry about default risk that falls on the banks which lends credit to their consumers. As such, MasterCard needs to concentrate only on increasing market share and expand into new markets (read emerging markets).

Based on comments from MasterCard CFO Martina Hund-Mejean, 85 percent of all transactions worldwide are still executed using cash, which leaves payment processors with a huge pool of untapped market. As a result, the company's comments over t! he market! share gains in the emerging and developed markets would be a key focus.

For the second quarter, MasterCard reported net income of $848 million or $6.96 a share, compared to $700 million, or $5.55 a share, last year. Net revenues for the quarter grew 15 percent to $2.10 billion.

Shares of MasterCard have gained 20 percent since its second quarter report and 59 percent in the last year and 44 percent year-to-date. MA shares traded between $451.18 and $737.83 during the past 52-weeks.

Analysts, generally, have a positive opinion on MasterCard as 23 out the 33 analysts covering the stock have a "strong buy" or "buy" rating while the remaining 10 rate it as "hold." There are no "sell" ratings on the stock.

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