A month has gone by since the last earnings report for MasterCard (MA). Shares have added about 2.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MasterCard due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Mastercard Q3 Earnings Beat Estimates on Volume Growth
Mastercard Incorporated reported adjusted earnings of $1.78 per share, beating the Zacks Consensus Estimate by 5.95%. Earnings improved 33% year over year. Improved revenues drove the earnings upside.
Better-than-expected results were primarily backed by higher switched transactions, increase in cross-border volume and gross dollar volume as well as gains from acquisitions. An increase in rebates and incentives year over year was a partial dampener.
Strong Operational Performance
Mastercard's revenues of $3.9 billion beat the Zacks Consensus Estimate by 0.9%. Revenues were up 17% year over year (on a currency neutral basis).
Total adjusted operating expenses increased 10% to $1.6 billion, due to higher, general and administrative expenses, advertising and marketing expenses and investment made for growth.
Interest expenses of $48 million increased 37% year over year.
Operating margin expanded 230 basis points to 59.4%.
Gross dollar volume increased 13% while purchase volume was up 15%.
The company's margins gained from a lower tax rate of 16.1% in the third quarter that compares with 26% in the year-ago quarter.
As of Sep 30, 2018, the company's customers had issued 2.5 billion Mastercard and Maestro-branded cards, adjusted for the impact of the Venezuela deconsolidation.
As of Sep 30, 2018, the company's cash and cash equivalents were $6.87 billion, up 15.8% from the level at year-end 2017. Long-term debt was $5.86 billion, up 7.4% from the mark at 2017 end.
Share Repurchase and Dividend Payment
During the reported quarter, Mastercard repurchased shares worth $1.2 billion and returned $260 million in dividends.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, MasterCard has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MasterCard has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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