Mastercard Sees Steady Improvements As Spending Begins To Recover

Mastercard (MA) has released its updated Q2/20 operating metrics through the week of May 7th, showing continued improvement across all major categories.

Notably, MA is starting to see the transition from the Stabilization phase to the Normalization phase beginning in some markets, although it is very early days.

The company is monitoring the impact of the coronavirus pandemic and related actions being taken by governments as it relates to border restrictions, social distancing measures and opening of businesses, and the resultant impact on spending levels.

The Stabilization phase is characterized by spending stabilizing around new lower levels as a result of compliance with social distancing and mobility limitations. The Normalization phase occurs when these restrictions are relaxed and spending begins to gradually recover from the new lower levels, with some sectors recovering faster than others.

Mastercard has now recorded an additional two weeks of activity, and notes that Switched Volume and Switched Transactions are showing improvements over the past two weeks, in part due to the relaxation of social distancing measures in several markets and the impact of fiscal stimulus in the US.

For instance, Switched Volumes are now down 12% y/y vs. its previous update (data through the week of April 21), which was down 20% y/y.

Additionally, MA continues to see strong demand for its Data & Analytics and Cyber solutions. “In Q2, we expect services growth will continue to outperform our core products and deliver positive growth” says Mastercard.

However, Cross-Border Volume continues to be impacted by the decline in travel, although MA has seen modest improvements over the last week in part due to an increase in intra-Europe travel.

“Overall recent trends are encouraging, with steady improvements continuing into May, which suggest the uptick was not just an April bounce” comments RBC Capital analyst Daniel Perlin.

“Although cross-border remains depressed, we believe investors can put a stake in the ground to create base-case scenarios, which enables a floor to be put in and around cross-border revenues.” He has a buy rating on the stock and $308 price target.

Indeed MA scores a bullish Strong Buy Street consensus with 18 recent buy ratings vs just 3 hold ratings. Meanwhile the average analyst price target of $312 indicates 16% upside potential from current levels. MA stock has dropped 10% on a year-to-date basis. (See MA stock analysis on TipRanks).

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