Mastercard Stock To Top The Consensus In Q1?

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Mastercard (NYSE: MA) is scheduled to report its fiscal Q1 2022 results on Thursday, April 28. We expect Mastercard to top the consensus estimates of revenues and earnings. The company is the second-largest global payment solutions provider. It posted better than expected results in the last quarter, with net revenues (revenues minus rebates & incentives) of $5.2 billion – up 27% y-o-y. The growth was driven by a 53% jump in the cross-border volume, followed by a 23% increase in the gross dollar volume (GDV), and a 27% rise in the switched transactions. It was due to a recovery in the consumer spending levels, thanks to the improvement in the economic conditions and easing of Covid-19 related restrictions in most parts of the world. We expect the same trend to continue in the first quarter.

Our forecast indicates that Mastercard’s valuation is $407 per share, which is 18% above the current market price of just above $344. Our interactive dashboard analysis on Mastercard’s Earnings Preview has more details. 

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(1) Revenues expected to edge past the consensus estimates

Mastercard’s revenues (net revenues) increased 23% y-o-y to $18.9 billion in 2021. The growth was due to higher consumer spending levels, which led to growth in all the revenue streams. 

  • The cross-border volume suffered in 2020, leading to a 37% decrease in cross-border volume fees. However, the volume increased 32% y-o-y in 2021 due to improvement in the economy and the lifting of Covid-19-related restrictions. It resulted in a 33% rise in the segment revenues. That said, the segment contributed close to 25% of the net revenues in 2021, which is still lower than the usual 33% share seen before the pandemic. We expect the cross-border volume fee to continue its growth momentum in the first quarter.
  • While the growth in GDV was flat in 2020, the number of switched transactions increased a meager 3% y-o-y. That said, both the metrics witnessed a strong recovery in 2021 – the figures were up 24% and 25% respectively. Further, it led to a 23% increase in the domestic assessment revenues, followed by a 24% rise in transaction processing fees. We expect the same trend to continue in the first quarter.
  • Overall, we expect Mastercard’s net revenues to remain around $22.6 billion for full-year 2022.

Trefis estimates Mastercard’s fiscal Q1 2022 net revenues to be around $5.03 billion, 2% above the $4.91 billion consensus estimate. We expect the improvement in consumer spending levels to drive the first-quarter results.

Moving forward, we expect consumer activity levels to further improve. It will likely benefit the cross-border volume, GDV, and the number of switched transactions. Our dashboard on Mastercard’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.

(2) EPS is likely to beat the consensus estimates

Mastercard Q1 2022 adjusted earnings per share (EPS) is expected to be $2.26 per Trefis analysis, almost 4% above the consensus estimate of $2.17. The company’s net income increased 36% to $8.7 billion, primarily due to the growth in the top line and a one-time gain of $645 million on equity investments. As a result, the net income margin improved from 41.9% to 46%.

We expect the net income margin to see some drop in the current year. Overall, Mastercard is likely to report an adjusted net income of $10.1 billion and annual EPS of $10.39 for full-year 2022. 

(3) Stock price estimate is 18% more than the current market price

We arrive at Mastercard’s valuation, using an EPS estimate of around $10.39 and a P/E multiple of just above 39x in fiscal 2022. This translates into a price of $407, which is 18% above the current market price of around $344. 

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 Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MA Return -4% -4% 233%
 S&P 500 Return -8% -12% 86%
 Trefis Multi-Strategy Portfolio -8% -15% 233%

[1] Month-to-date and year-to-date as of 4/27/2022
[2] Cumulative total returns since the end of 2016

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