MA Preview: Another Upside Surprise?

By all accounts, MasterCard's (MA - commentary - Trade Now) earnings report should be a yawner, since Visa (V - commentary - Trade Now) reported results that were in line with expectations last week. Nevertheless, MasterCard can sometimes surprise; while Visa earnings were nearly in line for the last two quarters, MasterCard managed to follow on with spectacular upsides, driving the stock higher.

On Tuesday, analysts are looking for MasterCard to report earnings of $2.94 per share on $1.348 billion in revenue. Investors key in on all the same metrics for both Visa and MasterCard: volume (dollar) growth, transactions processed growth, split of credit vs. debit. For MasterCard, all of these metrics should move in the same direction as Visa, with transactions up, volume mixed depending on geography and debit booming while credit stagnates. MasterCard is still skewed more to credit, with 75% of volume on the credit card side, so it has more room to grow in debit.

Analysts are looking for domestic assessment revenue to grow around 2% sequentially. Look for flat to lower volumes with some pricing tailwind. Gasoline prices are not helping, as they came off the second-quarter highs. Investors will be concerned with the impact of the loss of the WaMu debit business, but the impact is likely already in the stock.

Cross-border should be up 11% sequentially, with a strong dollar headwind being offset by volume growth on more international travel in the third quarter. MasterCard rolled back a European fee increase in July, which is flattening out any pricing impacts. Analysts are interested in the European SEPA-related debit business and will quiz management regarding progress in winning this.

Transaction processing revenue should be up over 3% sequentially. Most analysts expect decelerating transactions vs. the second quarter but are noting a recent reacceleration, which was confirmed in Visa's recent report. Pricing is driving the balance of transaction revenue growth.

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At the time of publication, Dvorchak was long Visa, although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.