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Will Higher Card Spending Drive MasterCard (MA) Q1 Earnings?

MasterCard Inc. MA is scheduled to report first-quarter 2017 results on May 2, before the opening bell.

Last quarter, MasterCard surpassed the Zacks Consensus Estimate by 1.18%. Let’s see how things are shaping up for this announcement.

Q1 Flashback

The loss of MasterCard’s key client USAA to Visa Inc. V is likely to weigh on its credit card business.  

We expect revenues to suffer from foreign exchange headwinds.
Also, we believe that the top line will grow from increased spending from the cards carrying the company’s brands.

The company’s efforts in expanding its services business, which  posted 18% organic compound annual revenue growth from 2013 to 2015 and differentiates the company in its market. Higher utilization of the company’s service offerings led to revenue acceleration in the previous quarter, and the same is expected to be seen in the quarter to be reported.

Top line growth will, however, be offset by an increase in rebates and incentives primarily due to the impact from new and renewed agreements.
The recently announced debt issue will raise interest expense, which will likely be a headwind to earnings per share. Also, accelerated advertising and marketing spend is likely to eat into the company’s bottom line.

The company’s continued investments in key long-term growth areas, such as digital, including Masterpass and MDES, safety and security as well as geographic expansion, will increase overall expense. This will be offset by cost management efforts to some extent.

During the previous earnings conference call, the company announced that it will expedite advertising and marketing (A&M) expenditure in the first half of 2017 to support the rollout of Masterpass. It also pointed that first-quarter A&M expenditure will increase about $40 million year over year. In the other income and expense line, interest expense related to the additional debt issued last November would add approximately $15 million to its normal underlying run rate of roughly $25 million per quarter.

The company’s use of capital in buying back shares which has the effect of reducing the share count will help the company’s bottom line.

Mastercard Incorporated Price and EPS Surprise


Mastercard Incorporated Price and EPS Surprise | Mastercard Incorporated Quote

Earnings Whispers

Our proven model does not conclusively show that MasterCard is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: MasterCard has an Earning ESP of +1.06%. This is because the Most Accurate estimate stands at 95 cents per share, which is above the Zacks Consensus Estimate of 94 cents. 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 #4 (Sell). Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

UGI Corporation UGI is expected to report first-quarter 2017 earnings results on May 1. The company has an Earnings ESP of +1.56% and a Zacks Rank #3.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Eaton Corporation ETN has an Earnings ESP of +2.30% and a Zacks Rank #2 (Buy). The company is expected to report first-quarter earnings results on May 2.

AMTEK, Inc. AME has an Earnings ESP of +1.79% and a Zacks Rank #2. The company is expected to report first-quarter earnings results on May 2.

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UGI Corporation (UGI): Free Stock Analysis Report
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Mastercard Incorporated (MA): Free Stock Analysis Report
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