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Should Investors Worry About Coronavirus Impact on Mastercard?

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Mastercard Incorporated MA has announced that Coronavirus outbreak is likely to impact its cross-border e-commerce growth.

Cross-border business is likely to be negatively impacted due to reduction in cross-border travel, as people around the globe are taking precautionary measures. Several travel bookings have been cancelled and cruise operators are considering suspending further bookings.

In 2019, the company’s cross-border volume grew at 16% on a local-currency basis, driven by double-digit growth across most regions. The company’s cross-border volume fees, which formed 22% of its gross revenues, were up 13% in 2019 and 19% in 2018.

As a result of the virus outbreak, Mastercard said that if cross-border business continues to show weakness through the end of the quarter, year-over-year net revenue growth in the first quarter will be approximately 2-3% lower than its previous estimate.  The company, on its fourth-quarter earnings call, estimated full-year 2020 revenues to increase in the low-teens without currency effects or acquisitions, and first-quarter results would be about 2% percentage points lower year over year. Notably, in the first quarter of 2019, the company reported net revenue increase of 13%.

Under these circumstances, Mastercard expects year-over-year net revenue growth of 9-10% in the first quarter of 2020 on a currency-neutral basis, excluding acquisitions.

Following the news, the stock lost 4.81% in last day’s trading. Other companies in the same space such as Visa, Inc. V, American Express Co. AXP and Discover Financial Services DFS also fell by 4.18%, 5.23% and 2.91%, respectively.

Despite the temporary glitch from the COVID -19, the company is poised for long-term growth owing to an increase in personal consumption expenditure growth, shift toward electronic forms of payment and its expanding market share.

Mastercard is also growing business by supplementing its core network and providing integrated value-added products and services, and enhanced payment capabilities to capture new payment flows, such as business to business (“B2B”), person to person (“P2P”), business to consumer (“B2C”) and government payments.

The company is also widening its network in digital, realtime payments (ACH) and emerging markets.

Mastercard’s recent agreements with Citibank, Capital One, payUS, Standard Bank Group in South Africa, MoneyLine, Vistara Airlines in India, Norwegian Cruise Line in the United States, China Construction Bank, HDFC Bank and State Bank of India bode well for transaction processing growth via its network. These should also aid revenue growth.

The company’s 2020 business environment looks good with low unemployment and healthy consumer confidence in the United States. However, a number of economic and geopolitical factors as well as the potential effects of corona virus outbreak could impact results, but it would be nothing more than a temporary phenomenon.

For 2020, the Zacks Consensus Estimate indicates earnings growth of 15.83% compared with the industry’s growth of 14.5%.

The stock has gained 45.34% in a year’s time compared with its industry’s growth of 40.9%.

Mastercard carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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