Mastercard Stock To Miss The Earnings Consensus In Q4?

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Mastercard (NYSE: MA) is scheduled to report its fiscal Q4 2021 results on Thursday, January 27, 2022. We expect Mastercard to report lower than expected earnings, while revenues are likely to remain in line with the estimates. The company outperformed the consensus estimates in the last quarter, with net revenues increasing by 30% y-o-y to $4.99 billion. It was driven by a 61% y-o-y jump in cross-border transaction revenues, followed by a 22% rise in domestic assessment, and a 27% increase in transaction processing revenues. We expect the domestic assessment and transaction processing revenues to follow the same momentum in the fourth quarter. However, cross-border transaction volumes are likely to suffer due to Covid-19 related lockdown and travel restrictions in some parts of the world. 

Our forecast indicates that Mastercard’s valuation is $409 per share, which is 17% above the current market price of close to $349. Our interactive dashboard analysis on Mastercard’s Earnings Preview has more details. 

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(1) Revenues expected to be in line with the consensus estimates

Mastercard’s revenues (net revenues) decreased 9% y-o-y in 2020 to $15.3 billion. It was 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 is the second largest electronic payments solutions company. It generates roughly 22% of the gross revenues from cross-border volume fees. The revenue share decreased to 15% in 2020, due to the Covid-19 related lockdown and travel restrictions. That said, the fees have seen some recovery over the second and third quarters of 2021 due to the easing of travel restrictions. Notably, the cumulative nine-month cross-border volume fees increased 24% y-o-y to $3.3 billion. We expect the cross-border volume fees to suffer in the fourth-quarter results, as international travel was down due to Covid-19 related restrictions due to a surge in cases.
  • The domestic assessment (down 2% y-o-y) and transaction processing fees (up 3%) suffered in 2020, due to a drop in consumer activity levels. That said, both the revenue streams have seen a strong recovery in 2021. Markedly, cumulative nine-month domestic assessment and transaction processing fees grew 22% y-o-y and 23%, respectively. We expect the fourth-quarter results to be on similar lines.
  • Overall, we expect Mastercard’s revenues to touch $18.8 billion for FY2021.

Trefis estimates Mastercard’s fiscal Q4 2021 revenues to be around $5.14 billion, in-line with the $5.16 billion consensus estimate. We expect domestic assessment and transaction processing revenues to drive growth in the fourth quarter.

Going forward, we expect the improvement in the consumer spending levels and easing of Covid-19 related restrictions to drive growth in the subsequent quarters. However, a sudden uptick in Covid-19 cases can hurt the prospects. 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 miss the consensus estimates

Mastercard Q4 2021 adjusted earnings per share (EPS) is expected to be $2.01 per Trefis analysis, almost 9% below the consensus estimate of $2.21. The company’s profitability suffered in 2020 due to lower revenues and an increase in expenses as a % of revenues. That said, the numbers have seen some recovery over the first three quarters of 2021. Notably, the cumulative nine-month adjusted net income increased 36% y-o-y to $6.3 billion, primarily due to growth in the top-line. We expect the same trend to continue in the fourth quarter. Overall, Mastercard is likely to report an annual EPS of $8.26 for full-year 2021. 

(3) Stock price estimate 17% higher than the current market price

We arrive at Mastercard’s valuation, using an EPS estimate of around $8.26 and a P/E multiple of just below 50x in fiscal 2021. This translates into a price of $409, which is 17% above the current market price of around $349. 

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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 Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MA Return -3% -3% 238%
 S&P 500 Return -7% -7% 97%
 Trefis MS Portfolio Return -10% -10% 252%

[1] Month-to-date and year-to-date as of 1/25/2022
[2] Cumulative total returns since the end of 2016

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