MasterCard Set Up For Big Move Ahead Of 1Q2013 Earnings

| About: MasterCard Incorporated (MA)

By: Todd McDonald, Analyst

Overview

MasterCard (NYSE:MA) is slated to report 1Q 2013 earnings before the opening bell on Wednesday, May 1. The actual results are typically released between 8:00 and 8:10 a.m. EST and follow with a conference call at 9:00 a.m.

Outliers & Strategy

  • Earnings Per Share: The current Street estimate for first quarter earnings per share is $6.17, with a range of $5.95 to $6.32. (Source: Yahoo! Finance) MasterCard has beaten EPS estimates 6 of the last 8 quarters.
  • Revenues: Analysts see revenues coming in at $1.93 bln, with a range of $1.88 bln to $1.96 bln.
  • Relative Valuation: MasterCard currently trades at a steep discount to its primary competitor, Visa (NYSE:V). Current trailing twelve month price to earnings ratios are 24.58 and 46.71 respectively. (Source: Yahoo! Finance) Besides Visa, look for other payment processing companies such as American Express (NYSE:AXP), Discover Financial Services (NYSE:DFS), Capital One Financial (NYSE:COF), and eBay (NASDAQ:EBAY) to potentially move off the MasterCard release.
  • Consumer Confidence: The Conference Board released a positive Consumer Confidence reading of 68.1, versus estimates of 61.3.
  • Implied Volatility: The average move after earnings over the past eight quarters has been 4.38%. Options premiums are currently pricing in a more muted move of approximately 2.6%.


Recent News

  • 04/09: The European Commission began a formal investigation into potential anti-trust violations in the MasterCard's inter-bank fees and other practices, according to a story on FoxBusiness.com. If found guilty, the fine can be up to $740 mln. Wells Fargo believes that regulatory pressure in Europe is a well-known risk MasterCard, but does pose short-term headline risk.
  • 04/01: According to a post on StreetInsider.com, Jefferies reiterated its Buy rating, while raising its price target on MasterCard to $623 from $552. The firm cited the clarity into MasterCard's earnings and the quality of the business model.
  • 02/25: MasterCard introduced "The Future of Digital Payments," called the MasterPass, at Mobile World Congress. The new product will allow users to conduct transactions with numerous devices and provide a more customized shopping experience.
  • 02/21: According to StreetInsider.com, UBS upgraded MasterCard from Sell to Neutral, while raising its price target from $425 to $519. The firm cites long-term prospects, capital allocation plans, and operating leverage as reasons for the upgrade.
  • 02/05: MasterCard announced a $2 billion share repurchase program, while also raising the quarterly dividend 100%, from $0.30 to $0.60, indicating the firm's growing ability to generate and return cash to shareholders.

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Technical Review

MasterCard shares have spent most of 2013 consolidating in a $30 range after breaking $500. Although MasterCard has underperformed the market slightly this year, it had a great 2012, rising 29.83%. The all-time highs were set earlier this month, at $546.90, which should be used as an initial, albeit weak, resistance point if earnings surprise to the upside. If earnings disappoint, support can be found at the bottom of the recent range near $510, followed by $500. (Chart courtesy of StockCharts.com)

Summary

MasterCard, along with the rest of the payment processing companies have been rewarding shareholders consistently thanks to an improving economy, rising consumer confidence, and excitement over innovative new payment processing systems. With the recent consolidation, there is potential for a large directional move. Look for numbers near the high end of the range for a reliable buy signal.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.