Mastercard (NYSE: MA) is scheduled to report its fiscal Q3 2021 results on Thursday, October 28. We expect Mastercard to edge past the revenues and earnings consensus estimates. The company topped the street expectations in the last quarter, with net revenues of $4.5 billion – up 36% y-o-y. It was driven by a 69% y-o-y jump in cross-border transaction revenues, followed by a 39% rise in domestic assessment, and a 37% increase in transaction processing revenues. The top-line benefited from improvement in consumer spending levels led by the economic recovery, a fast-paced Covid-19 vaccination program, and easing of Covid-19 related travel restrictions. Further, the revenue growth translated into a 45% y-o-y growth in the net income to $2.1 billion. We expect the same trend to continue in the third quarter.
Our forecast indicates that Mastercard’s valuation is $436 per share, which is 19% above the current market price of close to $365. Our interactive dashboard analysis on Mastercard’s Earnings Preview has more details.
(1) Revenues expected to edge past the consensus estimates
Mastercard’s revenues (net revenues) for full-year 2020 were $15.3 billion – 9% below the year-ago period. It was primarily due to a 37% y-o-y drop in the cross-border volume fees, partially offset by a 3% growth in the transaction processing revenues.
- Mastercard generates close to 22% of the gross revenues from cross-border volume fees, which decreased to 15% in 2020. It was because of the Covid-19 related travel restrictions, which reduced the cross-border volumes by 29% y-o-y. While the volumes continued to suffer in the first quarter of 2021, it posted some recovery in the second quarter – up 58% y-o-y. The lifting of travel bans and the accelerated Covid-19 vaccination program were the major reasons behind this recovery. We expect the third-quarter results to follow the same pattern.
- The domestic assessment (down 2% y-o-y) and transaction processing fees (up 3%) suffered in 2020. It was due to flat gross dollar volume activity and slower growth in the number of switched transactions. That said, the gross dollar volume has increased 19% y-o-y in the first half of 2021, followed by a 24% gain in the number of switched transactions. This has resulted in a 22% y-o-y and 21% growth in the domestic assessment and transaction processing fees respectively over the same period. We expect the third-quarter results to be on similar lines.
- Overall, we expect Mastercard’s revenues to touch $18.6 billion for FY2021.
Trefis estimates Mastercard’s fiscal Q3 2021 revenues to be around $4.99 billion, marginally above the $4.95 billion consensus estimate. We expect all the segments to report positive growth in the third quarter.
Moving forward, we expect the recovery in the consumer spending levels and lifting of Covid-19 related restrictions to further improve the top-line. Our dashboard on Mastercard’s revenues offers more details on the company’s operating segments along with our forecast for the next two years.
2) EPS is likely to beat the consensus estimates
Mastercard Q3 2021 adjusted earnings per share (EPS) is expected to be $2.23 per Trefis analysis, almost 2% above the consensus estimate of $2.19. The company’s adjusted net income decreased 21% y-o-y to $6.4 billion in 2020 due to an increase in operating expenses as a % of revenues from 43% to 47% and lower net revenues. That said, the trend changed in the first and second quarters, thanks to the revenue growth, leading to a 25% y-o-y increase in the net income for the first half of 2021. We expect the same to drive the third-quarter results.
Going forward, we expect Mastercard’s net income margin to see a slight improvement in FY2021, leading to an adjusted net income of $7.9 billion – up 23% y-o-y. It will likely result in an EPS of $7.98.
(3) Stock price estimate 19% higher than the current market price
We arrive at Mastercard’s valuation, using an EPS estimate of around $7.98 and a P/E multiple of just below 55x in fiscal 2021. This translates into a price of $436, which is 19% above the current market price of around $365.
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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