Will Mastercard Stock Beat Consensus In Q1?

MA: Mastercard logo

Mastercard (NYSE: MA) is scheduled to report its fiscal Q1 2021 results on Thursday, April 29. We expect Mastercard to beat the consensus estimates for revenues and earnings. MA, the second-largest global payment solutions company in the world, reported better than expected results in the last quarter, however, its revenues and profit figures slipped on a year-on-year basis. Its full-year 2020 revenues declined by 9% y-o-y, primarily driven by lower cross-border volumes, which suffered due to the Covid-19 related travel restrictions and quarantine requirements, and higher rebates & incentives. We expect the same trend to drive the first-quarter FY2021 results as well.

Our forecast indicates that Mastercard’s valuation is $363 per share, which is 6% below the current market price of around $387. Look at our interactive dashboard analysis on  Mastercard’s pre-earnings: What To Expect in Q1? for more details. 

(1) Revenues expected to beat the consensus estimates in Q1

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Trefis estimates Mastercard’s fiscal Q1 2021 revenues to be $4.19 billion, 5% above the $3.99 billion consensus estimate. Mastercard total revenues decreased 9% y-o-y to $15.3 billion in 2020 due to the impact of the Covid-19 crisis. Its cross-border volume fees recorded a dip of 37% y-o-y due to lower cross-border volume – the segment’s revenue share decreased from 22% to 15% of gross revenues (total revenues plus rebate & incentives). This could be attributed to the Covid-19 related travel restrictions in most parts of the world. Further, the company recorded a 2% y-o-y drop in its domestic assessment revenues due to lower consumer spending levels. That said, its transaction processing and other revenues have seen some growth in the year. Further, the consumer spending levels have improved over the recent months. We expect the momentum to continue in the first–quarter results as well.

The cross-border volume revenue is directly related to the global travel restrictions. While the Covid-19 related travel restrictions are still there, as more and more people receive the Covid-19 vaccination, travel bans are likely to be lifted in the coming months, benefiting the cross-border volume. Further, the consumer spending levels have seen some upturn over the recent quarters, and we expect the momentum to continue with the expected recovery in the economy. Overall, it will likely enable Mastercard’s revenues to touch $18.3 billion in FY2021. Our dashboard on  Mastercard’s revenues offers more details on the company’s segments.

2) EPS likely to top the consensus estimates

Mastercard’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.73 per Trefis analysis, 10% above the consensus estimate of 1.57. The drop in 2020 revenues also translated into lower profitability figures – adjusted net income decreased 21% y-o-y to $6.4 billion. It could be attributed to two factors – first, lower revenues; and second, an increase in operating expenses as a % of revenues from 42.8% to 47.2%, mainly driven by higher general & administrative expenses and provision for litigation settlement. This resulted in a drop in the EPS figure from $7.94 to $6.37. We expect the same trend to continue in the FY2021 Q1 results.

The net interest margin is likely to remain around the 2020 level in the current year. Further, the adjusted net income is likely to touch $7.6 billion in FY2021 – up 18% y-o-y, driven by higher revenues. This will enable the company to report an EPS of $7.72 in the year.

(3) Stock price estimate 6% less than the current market price

Going by our Mastercard’s valuation, with an EPS estimate of $7.72 and a P/E multiple of 47x in fiscal 2021, this translates into a price of $363, which is 6% below the current market price of around $387.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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