RBC Expecting Quiet Q4 Results Out Of The Payment Sector

• RBC Capital Markets’ Daniel R. Perlin said that the Payment companies are likely to report in-line results for 4Q and 2015.

Analyst Daniel Perlin said that Payment companies are unlikely to report “any meaningful acceleration” in their results. He cited the reasons as:

1. Modest uptick in y/y growth in card volume from US banks to about 5.6 percent q/q from 5 percent in the prior quarter
2. Modestly higher y/y growth in total SpendTrend volume to about 1.6 percent q/q versus 1.2 percent
3. Relatively high forex volatility, with major currencies down double-digits y/y against the US dollar, which translates to continued headwinds on reported results
4. The EMV liability shift could increase volatility in the results, both positively and negatively

Alliance Data

The rating for Alliance Data Systems Corporation (NYSE: ADS) has been maintained at Outperform, with a $355 price target. Perlin expects the company to report in-line 4Q results, with FX headwind being one exception. This could have been worse than expected.

Card Services is expected to have finished the year in-line with expectations.

MasterCard

The rating for Mastercard Inc (NYSE: MA) has been maintained at Outperform, with a price target of $114. “Overall, our estimates are slightly below the Street consensus, which we believe is the result of our model assuming higher operating expenses and possibly a higher tax rate,” Perlin wrote.

Although a yearend tax true-up is possible, and this could boost results, it would merely create tougher comps into FY16, the analyst added.

PayPal

The rating for Paypal Holdings Inc (NASDAQ: PYPL) has been maintained at Outperform, with a price target of $46. The RBC estimate for the quarter is about $0.02 above the Street consensus, which translates to the company meeting the upper-end of its FY15 guidance range.

“We believe the biggest delta vs. Street estimates is our adjusted operating margin assumption of 21% (as our revenues are largely in line), up both 100bps sequentially and y/y,” Perlin commented, while adding that he had assumed operating leverage and careful expense management to result in margin expansion.

Square

The rating for Square Inc (NYSE: SQ) has been maintained at Outperform, with a price target of $15. This is the company’s first quarter since its IPO, and the results are likely to be in-line with expectations. Perlin added, however, that there could be “some variability around key metrics in the results.”

He cited Square Capital’s pace of acceleration and ramp in hardware revenues as the “two biggest areas of possible Street variability.”

Vantiv

The rating for Vantiv Inc (NYSE: VNTV) has been maintained at Outperform, with a price target of $58. “The intra-quarter statistics give a relatively positive backdrop for Vantiv’s Merchant business, in our opinion; therefore, we are not anticipating any significant surprises in the quarter, though seasonal factors may cause average revenue per transaction to decline sequentially,” the report stated.

Perlin expects Vantiv to grow its Merchant Services transactions ahead of the industry growth rate, given its focus on integrated and direct channels as well as modest ramping of recent bank referral wins.

Visa

The rating for Visa Inc (NYSE: V) ) has been maintained at Outperform, with a price target of $91.

“Overall quarterly dynamics feel similar to last quarter, with lower oil prices, a lessening benefit from FX volatility, and moderating US credit volume growth, suggesting an in-line quarter,” Perlin mentioned. He added that the focus is likely to remain on Visa Europe and updates to guidance, given the continued macro uncertainty.