Mastercard Stock Likely To Top The Earnings Consensus In Q4

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Mastercard (NYSE: MA) is scheduled to report its fiscal Q4 2022 results on Thursday, January 26, 2023. We expect Mastercard to edge past the consensus estimates of earnings, while revenues will remain in line (just below) with the expectations. The company surpassed the street expectations in the last quarter, with net revenues (revenues minus rebates & incentives) of $5.76 billion – up 15% y-o-y. It was primarily driven by a 41% jump in the cross-border volume fees, a 15% growth in the transaction processing revenues, and a 5% increase in the domestic assessment income. We expect the same trend to continue in Q4.

Our forecast indicates that Mastercard’s valuation is $398 per share, which is 5% above the current market price of around $379. Our interactive dashboard analysis on Mastercard’s Earnings Preview has more details. 

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(1) Revenues expected to remain in line with the estimates

Mastercard’s revenues (net revenues) grew 20% y-o-y to $16.4 billion in the first three quarters of 2022. 

  • The cross-border volume fees increased 47% y-o-y to $4.8 billion in the first nine months of the year. It was due to a 51% rise in the cross-border volume. We expect the same trend to continue in the fourth-quarter results.
  • The gross-dollar volume (GDV) increased by 14% over the same period, resulting in an 11% growth in domestic assessment revenues. We expect the fourth-quarter results to be on similar lines. 
  • The transaction processing fees improved by 19% in the first three quarters driven by a 14% rise in the number of switched transactions. The same pattern is expected to follow in Q4.
  • Overall, we forecast Mastercard’s net revenues to remain around $22.18 billion for the full-year 2022.

Trefis estimates Mastercard’s fiscal Q4 2022 net revenues to be around $5.76 billion, in line (just below) with the $5.79 billion consensus estimate.

(2) EPS is likely to beat the consensus estimates

Mastercard Q4 2022 adjusted earnings per share (EPS) is expected to be $2.61 per Trefis analysis, almost 1% above the consensus estimate of $2.58. The adjusted net income improved 17% y-o-y to $7.4 billion in the first nine months of 2022. It was partly due to growth in the top line and partly due to lower expenses as a % of revenues. We expect the Q4 results to follow the same trend. Overall, Mastercard is likely to report an annual GAAP EPS of $10.57 for the full-year 2022. 

(3) Stock price estimate is 5% higher than the current market price

We arrive at Mastercard’s valuation, using an EPS estimate of around $10.57 and a P/E multiple of just below 38x in fiscal 2022. This translates into a price of $398, which is 5% above the current market price of around $379. 

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 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MA Return 9% 9% 279%
 S&P 500 Return 5% 5% 80%
 Trefis Multi-Strategy Portfolio 10% 10% 245%

[1] Month-to-date and year-to-date as of 1/24/2023
[2] Cumulative total returns since the end of 2016

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