Despite Expectations For A 'Solid' Q4 Print, BofA Says Mastercard No Longer A Buy

Credit card company Mastercard Inc MA is expected to report a "solid" fourth quarter on Jan. 31, but the company faces a "very challenging" 2019, according to Bank of America Merrill Lynch. 

The Analyst

Analyst Jason Kupferberg downgraded Mastercard from Buy to Neutral with a price target lowered from $230 to $207.

The Thesis

Mastercard already detailed certain metrics relating to the start of Q4, and multiple data points on U.S. consumer holiday spending point to "robust" results, Kupferberg said in the Tuesday downgrade note.

Beyond the fourth quarter, 2019 consensus estimates of 12.7-percent net revenue growth look too high, as they imply around 14-percent growth on a constant-currency basis, the analyst said. 

In addition to currency headwinds, Mastercard is likely to see a slowdown in cross-border volume from 21.5 percent in the first quarter 2018 — the strongest performance since 2009, Kupferberg said. Cross-border transactions are likely to be negatively impacted from the strength in the U.S. dollar as well as less demand for cryptocurrency-related transactions, he said. 

Despite BofA's downgrade from a bullish stance, Mastercard's long-term profile remains unchanged and includes the following, the analyst said:

• Favorable secular tailwinds.
• A strong business model.
• Impressive free cash flow generation.
• A best-in-class management team.

Investors looking for exposure to credit card companies may want to consider rival Visa Inc V, according to BofA.

The research firm has a Buy rating on Visa's stock and said the company already offered investors "safe" 2019 guidance, adding that that shares are trading at a 3.5-percent discount to Mastercard.

Price Action

Mastercard shares were down 0.79 percent at $189.62 at the time of publication Tuesday. 

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The Credit Card Logo Formerly Known As Mastercard

Photo courtesy of Mastercard.