Another Storm of Earnings Is Headed Your Way

As the earnings season maelstrom continues, let's get caught up on some of the recent reports from AAP portfolio holdings. Here we go...

Mastercard

All the way around, Mastercard (MA) once again delivered a solid earnings report, this time for its September quarter. By the numbers, revenue rose 15.5% year over year, EPS came in stronger than the consensus forecast, and gross dollar volume during the quarter rose 11% year over year.

In terms of the current quarter, the company guided year-over-year net revenue to grow at the high end of a mid-teens rate on a currency-neutral basis, excluding acquisitions. Confirming those prospects, Mastercard shared that through Oct. 21, its cross-border volume growth was 36% year over year, less than the 44% growth it saw in the September quarter and the 38% increase for the month of September 2022.

Given the nature of Mastercard's business, and by that we mean payments, members shouldn't be surprised that the December quarter tends to be one of, if not the, largest revenue quarters for the company. Comments from United Airlines (UAL) and other airlines, as well as American Express (AXP) and Visa (V) , so far point to consumer spending holding up better than expected. We also had Amazon's (AMZN) recent Prime Early Access Sale, and after today's market close, we may get some answers as to about how much was spent during those two days.

There were also competing efforts by Target (TGT) and others, which likely means October spending picked up, but we may have seen some pull forward from November and December spending as well.

While we continue to like the longer-term prospects for Mastercard's business as more consumers embrace credit, debit and mobile payments over cash and check, the decision to upgrade MA shares from the current Two rating will hinge on what the coming data will tell us.

Our concern is that a pronounced slowdown in consumer spending in the next few quarters should the economy contract more than is expected will lead to weaker than expected transaction volume across Mastercard's network. In the coming weeks, we'll be looking to mine Mastercard's own SpendingPulse reports as well as the analogous ones from Visa and others to get a realistic read on holiday shopping this year as well as overall spending trends.

United Rentals

In our opening comments this morning, we shared with members that United Rentals (URI) delivered a solid September quarter earnings report and lifted the lower end of its revenue for this year. As Chris shared in today's Daily Rundown, reinforcing that outlook as well as our underlying investment thesis on URI shares, heavy equipment company Caterpillar (CAT) reported a 29% year over year increase for North American construction equipment in its September quarter results.

We see that as companies preparing for the wave of infrastructure spending to be unleashed in the coming quarters are part of the Biden Infrastructure Bill, a catalyst that should drive utilization levels and pricing for United Rentals. Reinforcing that view, during its earnings conference call, management reminded us that United's exposure primarily split between non-residential construction (45%) and Industrial/Other (50%), with only modest revenue from residential construction (4%).

We're not surprised United didn't offer specific guidance for 2023 but it spoke to comments we shared in last week's Roundup about the number of mega-projects in play as well as Biden Infrastructure Spending.

We continue to favor the shares, and as infrastructure spending accelerates, we're inclined to revisit our current price target.

Action Alerts PLUS is Long MA, AMZN, URI.