Mastercard Dips 8% As 3Q Profit Disappoints; Street Sticks To Buy

Shares of Mastercard fell 8.1% on Wednesday after its 3Q earnings of $1.60 decreased 26% year-over-year and lagged the Street estimates of $1.66, due to weak travel spending amid the COVID-19 pandemic. The payments processor’s 3Q revenues of $3.8 billion missed analysts’ expectations of $3.95 billion and declined 14% from the year-ago quarter.

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Mastercard (MA) reported gross dollar volume growth of 1% year-over-year, on a local currency, while cross-border volume declined 36% year-over-year. Switched transactions grew 5% in 3Q from the year-ago quarter.

Mastercard’s CEO Ajay Banga said during the earnings call that “we have seen some improvement in domestic travels in the quarter including spending in categories such as lodging and restaurant. Cross-border travel however remains constrained.” He added “while we have seen some improvement in travel within the EU [European Union] during the quarter, cross-border travel outside the EU has shown only limited recovery.”

Banga commented that cross-border travel is improving, but full recovery is “going to take some time, and it will be positively impacted by the broad availability of successful therapeutics and vaccines.” (See MA stock analysis on TipRanks).

Following the results, Raymond James analyst John Davis maintained a Buy rating and a price target of $345 (18.4% upside potential) on the stock. The analyst said “despite the cross-border headwind, we expect MA to come out the other side of COVID a winner as the pandemic has accelerated the shift to contactless and e-commerce.”

Davis, cautioned though that “until we receive a vaccine or some therapeutic, cross-border will continue to be a drag on forward estimates as volumes take longer than originally estimated to recover.” He recommends to buy the stock over the longer-term as “there are few better assets from both a competitive moat and earnings compounding perspective.”

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 21 Buys and 3 Holds. The average price target of $368.50 implies upside potential of about 26.5% to current levels. Shares have declined by about 2.4% year-to-date.