Earnings Preview For MasterCard 4Q 2011

Feb. 1.12 | About: MasterCard Incorporated (MA)

by Brendan Gilmartin

Overview

MasterCard (MA) is slated to report 4Q 2011 earnings before the opening bell on Thursday, February 2, 2011. The actual results are typically released between 8:00 and 8:10 a.m. EST and will follow with a conference call at 9:00 a.m.

Outliers & Strategy

  • MasterCard shares recently hit all-time highs ($384.99 high on 12/02/2011), due in part to more amenable regulations over the amounts debit card issuers may charge merchants under the Dodd-Frank financial reform bill.
  • Key measures: Earnings Per Share & Revenues.
  • MasterCard is expected to report earnings of $3.92 per share (range is $3.61 to 4.28) on revenue of $1.73 bln, a y/y increase of nearly 20%. (Source: Yahoo! Finance). EPS have topped estimates by an average margin of 9.45% over the previous four quarters.
  • Competitors: American Express (NYSE:AXP) topped 4Q EPS estimates, but noted revenues were a bit light, citing a slight decrease in net interest income. The weak revenue figure triggered a 1.8% drop in AmEx shares. Similarly, Capital One (NYSE:COF) said its 4Q EPS and revenues fell shy of Street estimates, sending its shares lower by more than 5%.
  • MasterCard shares rallied sharply after each of the four previous earnings releases (see table at top of page).
  • MasterCard boasts a strong balance sheet, with $4.39 billion in cash on its books as of September 30, with a FWD PEG ratio of just 0.99, implying the shares are trading at a slight discount to the estimated growth rate.
  • Last quarter, MasterCard posted EPS of $5.63, WELL ABOVE the estimate of $4.82, triggering a 7% rally in the share price. This will be a tough act to follow and with the stock near an all-time high, MasterCard shares are vulnerable to any missteps.

Recent News

  • 01/13: Sterne Agee made positive comments on both MasterCard & Visa (NYSE:V) (reports earnings on February 8). The firm noted that the positive card metrics in the JP Morgan earnings release on 1/13 bodes well for those names ahead of earnings, according to a report in Barron's. Sterne Agee also believes MasterCard & Visa have strong growth and defensive characteristics.
  • 01/12: JP Morgan reiterated an Overweight rating on MasterCard with a price target of $431, according to a post on Benzinga.com. The firm cited the global shift in card-based and electronic payment systems.
  • 01/11: Goldman Sachs downgraded MasterCard from Buy to Neutral and lowered the price target from $400 to $380, based on valuation, according to StreetInsider.com. The firm also cited several other factors, including litigation risk, increased competition for debit cards, weakness in Europe, and currency headwinds.
  • 12/06: MasterCard declared a quarterly cash dividend of $0.15 per share.

Technical Review

MasterCard shares are off about 5% from the all-time high of $384.99 established on December 2. The shares are now at a key resistance level near $360, coinciding with the 50-Day SMA. Should earnings significantly top estimates, MasterCard shares could make a run back toward the aforementioned peak above $380. Should the stock fail to hold 4360, the next area of support is $350 (just above the 20-Day) SMA, followed by $340 and the 200-Day SMA near $320. (Chart courtesy of StockCharts.com)

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(Click to enlarge)

Summary

MasterCard shares recently hit an all-time high near $385, benefiting from global adoption of electronic and card-based payment systems. Headed into the 4Q earnings release, the shares have rallied over the past week, despite several potential headwinds: weakness in Europe, competition, and litigation risk. Weaker than expected earnings from American Express and Capital One are other factors to consider when MasterCard weighs in with its results before the open on Thursday.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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