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MasterCard Inc (MA) Q1 Earnings Preview

Global technology and payment industry leader Mastercard Inc (NYSE:MA) is expected to release its first quarter earnings results on Wednesday, May 1, 2013. Analysts at Jefferies anticipate MasterCard’s consensus top-line estimates may be aggressive.

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Jefferies analysts feel the current consensus calls for Mastercard Inc (NYSE:MA) to grow revenues 11.8 percent in 2013 as against Jefferies estimate of 10.4 percent. They expect this target as aggressive depending on variables such as FX, cadence of rebates / incentives, US consumer credit, and MasterCard’s ability to hold onto Durbin-related US debit share gains.

During MasterCard’s C4Q12 earnings call, management indicated that it expects net revenue growth in 1H13 to be below the constant currency 2H12 growth rate of 10.7 percent, pointing to a tough 1H12 comp.

Jason Kupferberg and his colleagues expect investors to remain focused on MA’s performance in US consumer credit, which has been weak in recent quarters, and may take several quarters to improve. Globally processed transactions through the month of February grew 15 percent y/y as against 4Q’s 20.1 percent y/y growth rate. Jefferies analysts feel this deceleration is largely ascribed to anniversarying of key European wins.

While MA did not provide specific guidance for F13 rebates and incentives, Jefferies analysts expect similar directional trends in this metric over time as with Visa Inc (NYSE:V).

The hearing for final approval for proposed settlement rule changes related to surcharging, collective bargaining, and other items is scheduled for 9/12/13. Jefferies analysts anticipate the potential for increased head-line related volatility of shares of V/MA as upcoming milestones come to pass. However Jefferies expect a high likelihood the settlement will eventually be approved and implemented largely as proposed last summer.

In the wake of the European General Court’s rejection of MasterCard’s cross-border MIF appeal in May 2012, a total of 14 lawsuits have been filed against MA in the UK by large European retailers such as Deutsche Bahn, WMT/Asda. Jefferies note that the ruling applies to MA’s European cross-border transactions, which generate only about 5 percent of MA’s total EU payments volume.

On February 5, 2013, MasterCard’s Board approved a new $2B repurchase program, effective at the completion of the previous outstanding authorization. Jefferies analysts believe that to mathematically achieve MA’s EPS CAGR guidance of 20 percent plus for 2013-15, share buyback will have to become an increasing part of the equation, as margin expansion from current levels is likely to be somewhat muted relative to historical gains.

Mastercard Inc (NYSE:MA) carries a current dividend yield of 0.5 percent. Jefferies analysts believe based on the substantial cash flow generated by its networks, it could afford to increase the dividend materially over time.

Kupferberg and his fellow analysts tweaked their MasterCard’s revenue estimates slightly higher (from $1,920.0 M to $1,927.3 M) and raised their EPS estimates for 1Q13 from $6.07 to $6.14, as they believe MA may increase the pace of share buybacks in 2013.

Jefferies analysts unchanged $623 price target for Mastercard Inc (NYSE:MA) is based on 21x their C14EPS estimate of $30.09. They noted that they are basing price targets off target 2014 P/E multiples due to high EPS visibility, flexibility in cost structures and extended guidance through 2015.

However the analysts retain their modest near-term bias for Visa Inc (NYSE:V) vs Mastercard Inc (NYSE:MA) due to 1) MA’s larger exposure to Europe, 2) more inherent risk in MA’s guidance, given it extends through 2015, 3) V’s market share gains in the high-yielding US credit market.


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