The latest results from Mastercard Inc. indicated strong consumer spending that analysts say will continue even as the coronavirus outbreak unfolds.
The company easily beat earnings expectations with its Wednesday morning report while generating revenue online. Mastercard MA,
said it saw gross dollar volume increase 12% and cross-border volume increase 16% based on local currency.
The shares rose 0.5% at midday.
“With respect to the macro environment, consumer spending remains relatively healthy, and we expect this to continue in 2020,” chief executive Ajay Banga said during the company’s earnings call. However, the company is “monitoring a number of economic and geopolitical factors as well as the potential effects of the coronavirus that could impact” its results.
Chief Financial Officer Sachin Mehra continued that it is still early to have much visibility on the impacts of the virus, which prompted some companies to close stores in China and caused a handful of airlines to reconsider flights to destinations. and from the country. Mastercard has a “natural hedge,” Mehra said, because “a lot of our inbound and outbound cross-border trade from China is e-commerce related.”
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The results and commentary were encouraging for Keefe, Bruyette & Woods analyst Sanjay Sakhrani, who highlighted the strength of Mastercard’s transaction volume and growth. “Obviously what’s happening with the coronavirus is worth watching, but we’re reassured that a lot of the Mastercard volume in China is tied to [e-commerce],” he wrote.
The company’s geographic strengths include the United States, Europe and Asia-Pacific, all of which are showing “steady to modest growth,” he said. “The outlook is more mixed in Latin America” as Mastercard experiences difficult conditions in Argentina and Mexico.
Sakhrani rates Mastercard shares to outperform with a target price of $383.
Leaving the coronavirus aside, Mastercard executives also talked about China in regards to the recent Phase 1 trade deal, which some say could open the door for US credit card giants to play a more direct role. in China. “We are pleased with the recent trade agreement with China and will obviously continue our efforts to obtain a license to participate in this national market,” Banga said.
Read: Coronavirus shock could give stock market a double-digit hit, investor warns
The totality of Mastercard’s comments on China struck Bernstein analyst Harshita Rawat as a “wait-and-see approach,” but she pointed out that the company saw strong overall cross-border trends in the quarter, although some s were worried about China before the report. . She has an outperform rating and a target price of $355 on Mastercard stock.
Barclays analyst Ramsey El-Assal applauded a “great list of renewals and wins”, including a deal with China Construction Bank and a deal with Bank of America Corp. BAC,
around business-to-consumer disbursements.
Still, “given the stock’s recent run and comments about the expected rise [operating-expense] growth due to mergers and acquisitions, we are not surprised by a largely neutral reaction to the strong fourth quarter results in today’s band,” he wrote. El-Assal rates Mastercard overweight with a target of $370.
Mastercard results kick off busy period for payments revenue, with PayPal Holdings Inc.’s PYPL,
results expected after Wednesday’s closing bell and Visa Inc.’s V,
issues scheduled for release on Thursday afternoon.
Shares of Mastercard have soared 18% in the past three months, outpacing gains from Visa and PayPal. The S&P 500 SPX,
increased by 8% during this period.
