Is A Surprise In Store For MasterCard (MA) In Q3 Earnings?

MasterCard Incorporated (NYSE:MA) is set to report third-quarter 2016 results on Oct 28.

In the last reported quarter, the company beat the earnings estimate by 6.67%. Moreover, the company posted a positive earnings surprise in each of the last four reported quarters, with an average beat of 6.86%. Let’s see how things are shaping up for this announcement.

Factors at Play

Third-quarter earnings will benefit from a number of factors such as recent investments, integration of acquisitions, a challenging forex and international environment, and higher rebates and incentives.

Also, we expect to see double-digit volume and transaction growth across most of its markets, as it continues to win deals by differentiating itself with service.

A number of co-brand deals announced recently will also add to the top line.
The bottom line is, however, expected to see a dent due to higher operating expenses primarily due to continued investments to support strategic initiatives.

In the second quarter, U.S. credit purchase volume growth had slowed and this is expected further in the third quarter as the USAA portfolio was rolled out fully.

We expect third-quarter earnings to witness growth in MasterCard’s Other Revenues driven by strength in the company’s value-added services such as the Advisors consulting business, cloud-based analytics, and safety and security product offerings.

Also, slightly higher-than-expected rebates and incentives will put pressure on the bottom line.

Earnings Whispers

Our proven model does not conclusively show that MasterCard is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate of MasterCard is pegged at 98 cents per share, same as the Zacks Consensus Estimate. The Earnings ESP is thus 0.00%. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: MasterCard carries a Zacks Rank #2. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

Stocks to Consider

Here are some 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:

American Financial Group Inc. (NYSE:AFG) has an Earnings ESP of +2.61% and a Zacks Rank #3. The company is scheduled to report third-quarter earnings on Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Allstate Corp. (NYSE:ALL) has an earnings ESP of +1.61% and a Zacks Rank #3. The company is scheduled to report third-quarter earnings on Nov 2.

Lincoln National Corp. (NYSE:LNC) has an Earnings ESP of +0.62% and a Zacks Rank #2. The company is scheduled to report third-quarter earnings on Nov 2.

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