(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his client's own shares of V and MA company.)
Mastercard Inc. (MA) will be walking in Visa Inc.'s (V) shadow when it reports its second-quarter results on Thursday morning before the market open. Visa reported third-quarter results that crushed estimates on both the top and bottom lines. As if that wasn't enough, Visa then boosted its full-year guidance.
Now, payment processor Mastercard has the nearly impossible task of having to outshine Visa when it reports an estimated 10.5 percent increase in revenue to $2.977 billion, and an 8.6 percent increase in earnings per share of $1.04.
This gives a perfect backdrop for why Visa is up nearly 30 percent in 2017, and Mastercard is up 26 percent, both destroying the S&P 500's measly 10.6 percent return.
Don’t feel too bad for Mastercard, though, because it has embarrassed analysts and their estimates on many occasions. The strange thing about Mastercard’s current revenue estimates is that analysts didn’t bother to raise the revenue number following Visa's monster 3Q beat.
(Chart Provided by YCharts)
In fact, we see the same trend occurring on the EPS side of the equation, with plenty of bottom-line beats. You can see in the chart below that analyst have actually been reducing Mastercard's numbers going into this earnings release.
(Chart Provided by YCharts)
Outside of the current numbers, it is important to see if like Visa, Mastercard goes ahead and raises its full-year targets. This is part of the reason why both Visa and Mastercard trade at such similar valuations, at nearly 26 times one-year forward estimates.
Analysts are expecting both Visa and Mastercard to grow earnings by approximately 15 percent in 2018. (See also: Visa Stock Hits $100 but Fails to Break Out From Resistance.)
Mastercard has been trending higher, as previously noted, with the 50-day moving average acting as a support line, giving the stock support down to the region of $123.
Additionally, the relative strength index is signaling shares are likely overbought at current levels, with the reading at roughly 72.5 – well above the overbought indication at 70.
Mastercard will be reporting its results in the shadow of Visa's stellar earnings. The company will have to post significant results – perhaps bigger than Visa – if it wants to regain the spotlight and come out of Visa's shadow.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.