Mastercard Shares Slump Over 6% as Q3 Earnings Miss Estimates; Target Price $370
Mastercard Inc, a leader in global payments and a technology company, reported a lower-than-expected profit in the third quarter as people cut on their spending amid the COVID-19 led economic recession, sending its shares down over 6% on Wednesday.
The U.S. multinational financial services corporation said its net income plunged 28% to $1.5 billion or $1.51 per share in the third quarter. Excluding items, profit was $1.60 per share. That was lower than the market expectations of $1.66.
“A rare EPS miss ($1.60 vs. JEFe/Street $1.63/$1.65) as revs came in ~3% light of Streeton notable weakness in Other, Cross-Border, and lower yields in Txn Processing. OpEx~6% below Street helped partially offset. US vols. through Oct. likely skewed by Prime Day, and could imply m/m decel when normalized, while Int’l rebound continues. Cross-Border ex-EU still down mid 40’s y/y, as card-present vols. retraced in Oct, coinciding w/tighter COVID restrictions,” said Trevor Williams, equity analyst at Jefferies, who gave a target price of $330.
“The continued recovery in International vol. growth (-3% July, +1% Aug, ~flat Sept, +1% Oct) is one silver lining in the results,” Williams added.
The credit services provider said its third-quarter net revenue decreased 14% on both an as reported and a currency-neutral basis to $3.8 billion. Third-quarter gross dollar volume up 1% and purchase volume up 2%, returning to positive territory, the company said.
At the time of writing, Mastercard traded over 6% lower at $296.95 on Wednesday; the stock is down about a percent so far this year.
“We are seeing encouraging progress in the trajectory of domestic spending, while travel spending remains a challenge. Meanwhile, we are winning new business in core payments and are making real progress with our digital solutions, differentiated service offerings and multi-rail capabilities,” said Ajay Banga, Mastercard CEO.
Mastercard Stock Price Forecast
Twenty-two equity analysts forecast the average price in 12 months at $370.32 with a high forecast of $415.00 and a low forecast of $330.00. The average price target represents a 24.80% increase from the last price of $296.74. From those 22 analysts, 19 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $359 with a high of $417 under a bull-case scenario and $215 under the worst-case scenario. The firm currently has an “overweight” rating on the credit services provider’s stock. Mastercard had its stock price forecast increased by KeyCorp to $365 from $340. The brokerage currently has an “overweight” rating.
Several other analysts have also recently commented on the stock. Barclays increased their price objective on shares of Mastercard to $385 from $360 and gave the stock an “overweight” rating in Sept. Royal Bank of Canada reissued a “buy” rating. In July, Daiwa Capital Markets reissued a “neutral” rating and set a $314 price target. Goldman Sachs Group initiated coverage with a “buy” rating and a $364.00 price target.
“Mastercard (MA) is one of our preferred stocks in the space. MA’s compounding growth drivers include resilient global consumer spend growth, market share gains, and the secular shift to card from cash. As the second-largest global card network (behind Visa), MA is well-positioned to benefit from market share gains in particular regions and consumer spending trends, which have been fairly resilient even through economic cycles,” said James Faucette, equity analyst at Morgan Stanley.
“These trends should support double-digit revenue growth over the next few years. High incremental margins and opportunities to expand its Vocalink and B2B capabilities should enable the company to drive compounding earnings growth longer term,” Faucette added.
Upside and Downside Risks
Upside: 1) Uptick in consumer spending trends. 2) New client wins in the US/Europe – highlighted by Morgan Stanley.
Downside: 1) Impact from regulatory action in Europe and elsewhere. 2) Material slowdown in consumer spending. 3) Potential for market share loss in Europe as V becomes more aggressive.
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