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Will High Business Volume Aid Mastercard's (MA) Q3 Earnings?

Mastercard Inc. MA is scheduled to report third-quarter 2017 results on Oct 31, before the opening bell.

We expect results of this payments network company to reflect increased purchase volume and processed transaction. The impact of acquisitions should improve its business volume in the quarter led by higher spending by members on an improved economy.

Here are some of the broad factors likely to affect third-quarter earnings:

Increase in Gross Dollar Volume: The Zacks Consensus Estimate for Gross Dollar volume which measures all Mastercard Credit Charge and Debit programs and includes purchase volume plus cash volume, one of the main revenue drivers, is expected to be $1.32 trillion, up almost 8% year over year.

Growth in Different Areas, Product Launch, Deals and Partnerships:  Third-quarter results would manifest the company’s targeted growth from its card offerings in different verticals — consumer credit, debit and commercial prepaid. Its continued investments in physical-digital convergence will keep it ahead in an industry witnessing rapid technology usage and accrue to its top line. Also, several new deals, extension of partnerships and agreements, new product launches, upgrades and alliances will be accruing to Mastercard's top line.

Expanding Service Business: The company's efforts in expanding its services business, which has been posting strong earnings, are its differentiators in the market. Higher utilization of the company's service offerings led to revenue acceleration in the previous quarter, and the same is expected in the quarter to be reported.

Other Factors

MasterCard’s top line in the third quarter would gain traction from its massive international business.

The company's disciplined cost management will add to its bottom line.
Earnings will, however, be offset by an increase in rebates and incentives primarily due to the impact of new and renewed agreements. Also, accelerated advertising and marketing spend is likely to hamper the company's bottom line.

We expect to see a lower tax rate led by higher earnings from lower tax-rate international markets (accounting for more than 60% of the company’s revenues) than in the prior year.

MasterCard’s use of capital in buying back shares will provide an extra cushion to its bottom line.

Mastercard Incorporated Price and EPS Surprise

Here is what our quantitative model predicts:

Our proven model does not conclusively show that Mastercard is likely to beat on 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 -0.07%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Mastercard carries a Zacks Rank #2 (Buy), its negative ESP makes our surprise prediction difficult.

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:  

Intercontinental Exchange Inc. ICE will report third-quarter 2017 earnings results on Nov 2. The company has an Earnings ESP of +0.19% and a Zacks Rank #3 (Hold). You can see">the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Voya Financial, Inc. VOYA has an Earnings ESP of +1.02% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Oct 31.

Western Union Co. WU has an Earnings ESP of +1.50% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Nov 2.

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