Global electronic payment processing giant – MasterCard Inc. (MA) is scheduled to release its fourth-quarter 2014 financial results before the opening bell on Jan 30.
In the last reported quarter, the company delivered a positive earnings surprise of 14.1%, while the four-quarter trailing average beat is 3.6%. This includes positive earnings surprises in all of the three reported quarters of 2014. Let us see how things are shaping up for this announcement.
Earnings Whispers?
Our proven model shows that MasterCard is not likely to beat earnings this quarter as it lacks the required combination of two key components.
Zacks ESP: The Most Accurate estimate of 67 cents per share is on par with the Zacks Consensus Estimate. Hence, the Earnings ESP, which is the difference between the two aforementioned estimates, is 0.00%.
Zacks Rank: MasterCard’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings beat. Hence, the combination of a Zacks Rank #3 and 0.00% ESP deters us from making a conclusive projection.
However, Sell-rated stocks (#4 and #5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Factors to Consider
MasterCard struggles to maintain a stable cost of operations of its vastly growing business. While operating expenses rose 12.6% in the first nine months of 2014, we expect further increase in the fourth quarter. Furthermore, acquisitions and currency fluctuations are expected to weaken earnings by 5 cents per share in 2014 and 2015.
We also anticipate high financial risks for the quarter, given that its operating cash flow tumbled about 9% in the first nine months of 2014. Management’s projection of generating net revenue growth in low double digits in 2014 reflects modest competitive pressure, currency fluctuations and higher cost of operations,which may also hamper margins.
Being a premier global operating organization, MasterCard is subject to increasing global regulatory scrutiny in the payments industry. Earlier this month, the company agreed to enter into a partnership with the Central Bank of Russia for processing its cards in the region, thereby adhering to conditions laid under the new Russian payments regulations. The capping of interchange fees in the European Union will further dampen revenue sources.
On the other hand, MasterCard’s initiatives to boost organic growth during the quarter included technology upgrades, launch of cloud-based services and expansion of MasterPass in over 15 countries. Additionally, the acquisitions of 5one Marketing Ltd in Nov 2014 and Transaction Network Services’ (TNS) Payment Gateway Services business are expected to boost MasterCard’s global merchant base and clientele as well as eCommerce revenue opportunities, while mitigating monetary loss from frauds.
Despite the raised debt levels due to acquisitions, efficient capital deployment has retained shareholder confidence, as reflected by the 45.5% dividend hike and injection of a new $3.75 billion share repurchase program in Dec 2014. MasterCard has also been outperforming its +50% operating margin benchmark for the past several quarters. These factors lend some buoyancy against the growth laggards.
Stocks that Warrant a Look
Here are some financial companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Ladder Capital Corp. (LADR) has Earnings ESP of +3.45% and a Zacks Rank #1 (Strong Buy).
CIT Group Inc. (CIT) has Earnings ESP of +4.26% and a Zacks Rank #2 (Buy).
MarketAxess Holdings Inc. (MKTX) has Earnings ESP of +3.85% and a Zacks Rank #2.
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