The Ratings Game: Mastercard stock could underperform with COVID-19 travel woes extending into 2021, analyst warns

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Travel spending could be slow to recover, warns Guggenheim analyst Jeff Cantwell, which could pressure Mastercard Inc.’s stock into 2021.

He became the second analyst to downgrade Mastercard shares MA, -5.01% over the past two days, cautioning that sluggish travel spending may continue to dog the company’s cross-border segment even after the worst of the COVID-19 pandemic is over. Cantwell reduced his rating to neutral from buy in a Thursday note to clients.

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“Looking ahead, we’re increasingly cautious on the outlook for Mastercard’s cross-border volumes in [2020 estimates],” he wrote. “We’ve seen numerous airlines, [online travel agencies] and hotel operators cutting numbers for this year, citing COVID-19, and consumers generally appear skittish to travel given all the uncertainty.”

Cantwell expects that the company will see “only a gradual recovery” in cross-border spending during 2021, which could cause Mastercard’s results for that area of the business to disappoint relative to analyst expectations “as the Street seems slow to grasp the severity in terms of how weak cross-border trends will impact Mastercard’s volumes.”

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He’s also worried about the domestic landscape. “U.S. consumer spend will likely moderate further in 2Q before starting to improve in 3Q/4Q – but we expect a relatively modest recovery in ‘21E as the unemployment rate is likely to remain well above where it was pre-COVID-19, which will impact [personal consumption expenditures],” Cantwell said.

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While Cantwell still has a bullish rating on Visa Inc.’s stock V, -4.95%, both Visa and Mastercard were subject to downgrades at Jefferies Wednesday given similar concerns about travel trends. Baird also made Visa a “bearish fresh pick,” which is a short-term negative view on a stock.

Mastercard shares are up 0.3% in premarket trading Thursday, while Visa’s stock is up 0.6%. Mastercard’s stock has fallen 20% over the past three months, as Visa’s has lost 17%. The S&P 500 index SPX, -2.20% is down 16% in that span, while the Dow Jones Industrial Average DJIA, -1.86%, of which Visa is a component, is off 20%.

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