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Can Mastercard (MA) Keep its Earnings Streak Alive in Q2?

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Mastercard Inc. (MA - Free Report) is scheduled to report second-quarter 2017 results on Jul 27, before the opening bell.

Last quarter, Mastercard surpassed the Zacks Consensus Estimate by 7.45%. The company exceeded earnings estimates in each of the last four quarters with an average positive surprise of 6.38%.

Let’s see how things are shaping up for this announcement.

Q2 Flashback

We expect the company’s top line in the second quarter to gain traction from its strong international business. This will likely be offset to some extent from softness in its U.S. credit card business, given the loss of one of its client, USAA, to Visa Inc.

The company’s disciplined cost management will add to its bottom line.

We expect increased purchase volume and processed transaction, which will increase its business volume in the quarter led by higher spending by members as the economy continues to improve.

Also, substantial investment in technology, new product launches, upgrades and alliances will be accruing to Mastercard’s top-line growth.

The company’s effort in expanding its services business, which has been posting strong earnings, is a differentiator for the company in the market. Higher utilization of the company’s service offerings led to revenue acceleration in the previous quarter, and the same is expected to be seen in the quarter to be reported.

Earnings will, however, be offset by an increase in rebates and incentives primarily due to impact from new and renewed agreements. Also, accelerated advertising and marketing spend is likely to hamper the company’s bottom line.

We expect to see a lower tax rate led by higher earnings from lower tax-rate international market than in the prior year.

The company’s use of capital in buying back shares, with the effect of reducing the share count, will help the company’s bottom line.

Mastercard Incorporated Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Mastercard is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Mastercard has an Earning ESP of +0.00%. This is because the Most Accurate estimate stands at $1.04 per share, in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Mastercard carries a Zacks Rank #2, a 0.00% Earnings ESP makes our surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

PayPal Holdings, Inc. (PYPL - Free Report) is expected to report second-quarter earnings on Jul 26. It has an Earnings ESP of +3.13% and a Zacks Rank #2.

Aon plc. (AON - Free Report) , which is set to report second-quarter earnings on Aug 4, has an Earnings ESP of +0.69% and a Zacks Rank #3.

Cigna Corp. (CI - Free Report) , which is set to report second-quarter earnings on Aug 4, has an Earnings ESP of +0.81% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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