Mastercard (NYSE: MA) is scheduled to report its fiscal Q2 2021 results on Thursday, July 29. We expect Mastercard to top the consensus estimates for revenues and earnings. The company outperformed the expectations in the last quarter, with its top-line increasing by 4% y-o-y. This was due to growth in both gross dollar volume activity and the number of switched transactions. However, its cross-border volume continued to suffer in the first quarter as well, due to the Covid-19 related travel restrictions. We expect the same trend to continue in the second quarter of FY2021.
Our forecast indicates that Mastercard’s valuation is around $400 per share, which is slightly above the current market price near $393. Look at our interactive dashboard analysis on Mastercard’s pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to beat the consensus estimates in Q2
Trefis estimates Mastercard’s fiscal Q2 2021 revenues to be around $4.39 billion, just above the $4.34 billion consensus estimate. The company reported total revenues of $15.3 billion in 2020 – down 9% y-o-y. The top-line mainly suffered due to lower cross-border volumes and a slight increase in rebates & incentives. The cross-border volumes were down due to Covid-19 related restrictions on travel, public gatherings, etc. This led to a 23% y-o-y drop in cross-border volume fees, reducing its contribution in total revenues from 33% to 23% in 2020. Further, the domestic assessment revenues slightly decreased in the year driven by lower consumer spending levels. That said, the domestic assessment and transaction processing revenues have seen some recovery in the first quarter driven by growth in gross dollar volume activity and the number of switched transactions. However, the cross-border volume continues to suffer in Q1, also. We expect the same trend to continue in the second quarter as well.
Moving forward, we expect the global travel restrictions to ease over the subsequent quarters, as more and more people receive the Covid-19 vaccine. This will likely benefit the cross-border volume fees. Further, the consumer spending levels are likely to improve with an 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 Q2 2021 adjusted earnings per share (EPS) is expected to be $1.76 per Trefis analysis, 2% above the consensus estimate of 1.72. The adjusted net income decreased 21% y-o-y to $6.4 billion in 2020, mainly driven by lower revenues and a drop in operating margin. Further, the operating margin continued to suffer in the first quarter also, although the net income improved due to higher revenues. We expect the same trend to govern the FY2021 Q2 results.
The net income margin is likely to see a slight growth in 2021. This will likely result in a net income of $7.8 billion, which is 22% more than the year-ago period. This will enable the company to report an EPS of $7.84 in the year.
(3) Stock price estimate marginally higher than the current market price
Going by our Mastercard’s valuation, with an EPS estimate of around $7.84 and a P/E multiple of around 51x in fiscal 2021, this translates into a price of $400, which is slightly above the current market price of around $393.
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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