Categorized | Long Ideas

Visa Inc. (V) – Down, no Up, It’s Everywhere (you want to be)

After reporting earnings after the close Monday, Visa Inc. (V) traded in a schizophrenic pattern Tuesday ending the day at a new record high.  The stock closed at $80.88 which is 84% above the offering price for those of you keeping score at home.  This after gapping down more than three dollars shortly after the opening bell.  Traders initially had a bit of trouble deciding whether the earnings report was net positive or negative, but by the end of the day, it appears Wall Street is happy with the numbers.

Digging into the statistics, the company reported pro-forma earnings of 0.52 on revenues of $1.5 billion dollars.  Management said that the strength was broad with contributions from service fees, data processing fees and international transaction fees.  However a Wachovia analyst pointed out that the results were primarily driven by price increases which originally took place in June and so have yet to factor into year over year numbers as well as lower than expected incentive fees.  It would be much more impressive to see strength due to a strong uptick in transaction volume but the higher revenue is still a positive.

One of the issues that makes Visa especially difficult to analyze is that the company reports operational performance on a trailing quarter basis.  So while the report was for the second quarter (ending March 31), many of the metrics are only available for the quarter ending Dec 31.  Specifically; the payment volume was $681 billion which is up 19% over last year, total cards in circulation amount to 1.6 billion which is up 16%, and total transactions processed were 11 billion up 16%.  However, since these figures are over 3 months old, it is difficult to see what kind of trends have already begun surfacing in a weakening economy which included a major financial institution failure and an unprecedented decline in consumer confidence.

The tone of the conference call appeared constructive with management cautiously optimistic as to the prospects for the rest of the year.  While pointing to a weakening economic backdrop and possible slowdown in the second half, the company is still expected to meet its long-term stated goals:

  • Revenue growth of 11-15%
  • EPS growth of 20% or better
  • Operating margins in the low 40% range
  • Annual free cash flow above $1 billion

It is also noted that the company processes an estimated 40% of volumes from non-discretionary spending which should help to insulate the company from a weakening economy.  Similarly, 36% of the cost structure is characterized as variable meaning management has some element of discretion and could pull back if revenue were to begin to lag expectations.

Speaking of discretionary costs, advertising expense came in a bit weaker than the Merrill Lynch analyst expected.  While reducing this cost had the effect of beefing up the margins, advertising will almost certainly pick back up in the second half as the Olympic events will be a strong venue for the company to market its brand.  Investors are likely pricing in a strong period during the Olympic games and it will be interesting to see how the global economic picture fits into the scenario.  In the meantime, the stock is trading at a healthy multiple and has had a very strong run since the IPO.  It would not be surprising to see the stock correct from current levels and I would play the name with caution.

v-chart.gif

V Notes

FD: Author has a position in V

Additional Reading:

Barrons with a cautionary note on Visa

Grace Cheng with an overview of US credit card spending

Visa Inc. (V) – Down, no Up, It’s Everywhere (you want to be)

4 Comments For This Post

  1. Zoe Matthews Says:

    Falshood made never a fair Hinder-end.

  2. Zlri3LyAb Says:

    616815 724120Attractive portion of content. I merely stumbled upon your weblog and in accession capital to assert that I get in fact loved account your weblog posts. Anyway I will probably be subscribing to your augment and even I success you get admission to constantly rapidly. 573016

  3. Michal Zukerman Says:

    Music began playing anytime I opened up this website, so annoying!

  4. ????? ?? Says:

    ??????????????????????????????????????????????????????????

3 Trackbacks For This Post

  1. ZachStocks » Blog Archive » Verso Paper Corp. (VRS) - Says:

    [...] Verso Paper, however, didn’t possess many of the same characteristics that made IPOs such as Visa and Intrepid Potash [...]

  2. ZachStocks » Blog Archive » Energy Recovery, Inc. (ERII) - Good IPO in a Sea of Losses Says:

    [...] articles by ticker VRS FCSX NILE HURN SOL RBCN AWK VMW EDU MR CPA CLWR GXDX IBKR MORN DLB BIDU V GA JRJC CMG MF LULU CROX ESEA FCSX SCOR EJ TNDM DSX CMED BX GTLS CTCM CRM SVR CLR PWRD BKC FSLR [...]

  3. ZachStocks » Blog Archive » MasterCard Incorporated (MA) - Growth Slowing Says:

    [...] increased competition with American Express Company (AXP), Discover Financial Services (DFS) and Visa Inc. (V).  This leads to an “organic” growth rate of 15% which certainly calls the current [...]

Leave a Reply

You must be logged in to post a comment.

Advertise Here






Loans for Bad Credit

Provident provides people with small, unsecured credit, when they need it.


Cash Loans Online

Borrow up to £500 if you are in England.


Invoice Factor Company

Hitachi Capital provides reputable and reliable invoice factoring for SMEs.

Use of Payday Loans “Robust” Across the Pond

DAILY EMAIL UPDATES



To contact Zach email Growth@ZachStocks.com






















ZachStocks Recommends:

Sell Timeshare

Charter Flights

Atlanta Bankruptcy Get Help Today!

Informative Payday loan listings

how to get a gold ira

Gold IRA

Buy Gold Coins

Buy Bullion

Buy Gold Eagle

Gold Bullion Coins

buy a gold ira

Gold Coins Investment

Penny Stock Newsletter

palladium mining
http://www.prophecyresource.com

Ambit Energy Complaints
http://twitter.com/ambitenergy -

Bad Credit Loans

SMSF