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Mastercard (MA) Gears Up for Q4 Earnings, What's in Store?

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Mastercard Inc. (MA - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 1, before the opening bell.

We expect an increase in net revenues primarily driven by increases across its revenue categories, accretive impact of acquisitions, higher switched transactions and increase in gross dollar volumes. The revenue growth, however, will be offset to a large extent by higher operating and personnel expenses reflecting continued investment in strategic initiatives.

Factors Likely to Impact Fourth-Quarter Earnings:

Increase in Rebates and Incentives: Rebates and incentives (recorded as contra-revenues) increase in the first nine months of  2017 and the same trend is expected to be seen in the fourth quarter primarily due to the impact of new and renewed agreements, and increased volumes.

Expanding Service Business: The company's efforts in expanding its services business, which has been posting strong earnings, are its differentiators in the market. Higher utilization of the company's service offerings led to revenue acceleration in the previous quarter, and the same is expected in the quarter to be reported.

Higher Gross Dollar Volume: The Zacks Consensus Estimate for Gross Dollar volume which measures all Mastercard Credit Charge and Debit programs, and includes purchase volume plus cash volume, one of the main revenue drivers, is expected to be $1.36 trillion, up almost 11% year over year.

Growth in Different Areas, Product Launch, Deals and Partnerships:  Fourth-quarter results would manifest the company’s targeted growth from its card offerings in different verticals — consumer credit, debit and commercial prepaid. Its continued investments in physical-digital convergence will keep it ahead in an industry witnessing rapid technology usage and accrue to its top line. Also, several new deals, extension of partnerships and agreements, new product launches, upgrades and alliances will be accruing to Mastercard's top line.

Other Factors

MasterCard’s top line in the fourth quarter would gain traction from its massive international business.

The company's disciplined cost management will add to its bottom line.
Earnings will, however, be offset by an increase in rebates and incentives, primarily due to the impact of 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 markets (accounting for more than 60% of the company’s revenues) than in the prior year.

MasterCard’s use of capital in buying back shares will provide an extra cushion to its bottom line.

Earnings Surprise History

The company boasts an attractive earnings surprise history. It surpassed the Zacks Consensus Estimate in each of the four reported quarters with an average positive surprise of 5.84%. This is depicted in the chart below:

Mastercard Inc. Price and EPS Surprise

Here Is What Our Quantitative Model Predicts:

Why a Likely Positive Surprise?

Our proven model shows that Mastercard has the right combination of two key ingredients to beat estimates this quarter.

Zacks ESP: Mastercard has an Earnings ESP of +0.33%, representing the difference between the Most Accurate estimate and the Zacks Consensus Estimate, which indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mastercard carries a Zacks Rank #2 (Buy). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have significantly higher chances of an earnings beat.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other 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:  

FleetCor Techologies, Inc. (FLT - Free Report) is expected to report fourth-quarter 2017 earnings results on Feb 14. The company has an Earnings ESP of +0.95% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Visa Inc. (V - Free Report) will report fiscal first-quarter 2018 earnings results on Feb 1. The company has an Earnings ESP of +0.157% and a Zacks Rank #3.

WEX Inc. (WEX - Free Report) has an Earnings ESP of +1.15% and a Zacks Rank of 1. The company is expected to report fourth-quarter earnings results on Feb 21.

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