Will MasterCard (MA) Miss Q3 Earnings on Regulatory Issues? - Analyst Blog

MasterCard Inc. (MA) is scheduled to release its third-quarter 2014 financial results before the opening bell on Oct 30.

In the last reported quarter, the company had delivered a positive earnings surprise of 3.9%, while the four-quarter trailing average beat is pegged at 1.5%. Let us see how things are shaping up for this announcement.

Earnings Whispers?

Our proven model shows that MasterCard is not likely to beat earnings this quarter as it lacks the required combination of two key components.

Zacks ESP: MasterCard has a negative ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of 77 cents per share and the Zacks Consensus Estimate of 78 cents, is -1.28%.

Zacks Rank: MasterCard's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

Sell-rated stocks (#4 and 5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum. 

Factors to Consider

Despite being one of the premier electronic payment processing companies, MasterCard faces significant risks from stringent regulations and litigations. The verdict on a litigation from the European Union during the quarter will likely dampen growth of cross-border fees going forward, and may slap the company with as much as £1.0 billion ($1.63 billion) worth of damages.

Moreover, the company's expansive global coverage adds risks from currency fluctuations, various tax policies, volatile changes in business models and intense competition, thereby adversely affecting operating costs and margins.

Nevertheless, efficient capital deployment has boosted shareholder return, despite the raised debt and acquisitions. MasterCard has also been outperforming its above-50% benchmark in operating margins over the past several quarters.

Going ahead, the organic growth initiatives implemented during the third-quarter like technology upgrades, strategic alliances with Apple Pay and First Data Corp., the pilot project in Nigeria and global expansion of MasterPass will open new growth avenues and strengthen MasterCard's position in the rapidly growing digital and contactless payments' space.

Other Stocks That Warrant a Look

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

JAVELIN Mortgage Investment Corp. (JMI) has Earnings ESP of +8.9% and a Zacks Rank #1 (Strong Buy).

Heartland Payment Systems Inc. (HPY) has Earnings ESP of +1.7% and a Zacks Rank #1.

Green Dot Corp. (GDOT) has Earnings ESP of +8.0% and a Zacks Rank #3 (Hold).

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