Why MasterCard (MA) May Beat on Earnings in Q4?

We expect MasterCard Inc.MA to beat earnings expectations when it reports its fourth-quarter and full-year 2016 results, on Jan 31.

Why a Likely Positive Surprise?

Our proven model shows that MasterCard has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP : Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.53%. This is a major indicator of a likely positive earnings surprise for the company.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : MasterCard carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings.

The combination of MasterCard's Zacks Rank #3 and ESP of +3.53% makes us confident of an earnings beat on Jan 31. Notably, the Zacks Consensus Estimate of 85 cents reflects a year-over -year increase of 7.8%.

Factors to Influence Q4 Results

MasterCard's quarterly results should get support from the broader favorable macro trends in the U.S. economy, with improving consumer confidence and declining unemployment. Also, several markets across Europe have been showing signs of gradual recovery. Notably, due to weak British pound, inbound travel to the UK has been rising.

While the picture in Asia remains mixed, results will likely continue to benefit from growth momentum in India. Notably, on Nov 8, 2016, the Indian government declared the two largest denomination bills invalid, thereby withdrawing around 86% of circulating cash by value. The move encourages digital transactions in India. Payment processing giant - MasterCard - should gain from substantial rise in transactions in the quarter.

Overall strength in the company's most of the markets should lead to double-digit volume and transaction growth as it continues to win deals, executing its long-term strategy.

The company's progress in the U.S. consumer business, with continued focus on debit should support results. Outside the U.S., the company is taking strategic initiatives in a number of portfolios by continuing to leverage services as a major differentiator.

For instance, it is building the long-term debit-deal announced in 2015 in Italy with Poste Italian, and has also been expanding partnership by converting a major portion of their prepaid portfolio. Also, the company should benefit from the numerous new deals with a number of banks in China, inked in third-quarter 2016.

Additionally, quarterly results are likely to get support from MasterCard's digital strategy.

However, on the downside, the U.S. credit purchase volume growth will remain slow, reflecting the continued impact of the USAA portfolio roll-off.

Also, higher rebates and incentives are likely to affect profitability to some extent, as the company usually signs several new agreements and renews agreements in the fourth quarter. Moreover, higher operating expenses, primarily due to continued investments to support strategic initiatives, may keep the bottom line under pressure.

For 2016, management had guided for a low double digit net revenue growth on a currency nuetral basis. Total operating expense is expecetd to increase in the low double-digit range, excluding special items. On a currency neutral basis, expense is expected to exhibit low double-digit increase.

Notably, MasterCard has a decent surprise history.

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated Price and EPS Surprise | Mastercard Incorporated Quote

Stocks That Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

Nasdaq, Inc. NDAQ is scheduled to release results on Jan 31. It has an Earnings ESP of +1.06% and carries a Zacks Rank #3.

CME Group Inc. CME is slated to release results on Feb 2. It has an Earnings ESP of +1.85% and carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

CBOE Holdings, Inc. CBOE has an Earnings ESP of +3.45% and sports a Zacks Rank #1. The company is slated to release results on Feb 6.

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Mastercard Incorporated (MA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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