By the time the bell rang to end Tuesday’s session, shares of Visa (NYSE: V) had notched their 9th straight up day, setting a post-2009 record run. This puts them up over 10% for 2020 alone having seen out 2019 with a blistering 40% rally. Even though shares are starting to look a little frothy up at these all-time highs (RSI is red hot
at 85), there’s no doubt that Wall Street is expecting big things from one of the world’s biggest debit and credit card names.
Run Of Good News
While most analysts are holding back until fresh earnings come out at the end of the month, the folks over at Macquarie came out the gates yesterday following the long weekend with an upgrade to Visa stock and a price target of $250; a premium of about 20% to Tuesday’s close. They’re pinpointing Visa’s dominance of the debit transactions market and the tendency of millennials to buy with debit rather than credit as a big driver for future growth. Not only does Visa outweigh MasterCard and American Express by market cap with $400 billion compared to their $300 billion and $100 billion respectively, it can also boast at least double the number of debit transactions. Keep in mind the emergence and growing popularity in payment apps like Venmo, PayPal and Square which are debit based first and foremost. Visa is best positioned to continue capitalizing on their growth.
Investors also appear to be loving Visa’s recent announcement of their $5 billion acquisition of API provider Plaid. Even though this is almost double Plaid’s most recent valuation of $2.65 billion in September, it opens up a ton of new opportunities for Visa to move into the high growth data network business. It also keeps them super relevant and accessible to fintech startups that emerge on the scene.
These good vibrations and the recent run in shares are also drawing strength from the opening up of the Chinese market on the back of the US-China trade deal from earlier this month. MasterCard (NYSE: MA) and American Express (NYSE: AXP) also stand to benefit from the opening up of one of the last great untouched markets to US financial services firms.
Against Its Peers
In terms of share performance, all three of the traditional payments names have been good to their investors in recent years. MasterCard is by far the leader over the past two years alone with a 100% move in shares, followed by Visa with 75% and AmEx with a modest enough 30% rally. For reference, the S&P 500 is ‘only’ up around 20% in the same time period. Interestingly though, there’s almost nothing between Visa and MasterCard over the past six months, both with around a 14% rally since July.
Management hasn’t been slow to feed investors either and to keep them happy in that time. After the company announced a beat on analyst expectations with their Q4 earnings in October, they came out with a 20% increase in the dividend. An increasing dividend is one of the most bullish signs that management can give to the market as it shows they’re super confident of being able to at the very least maintain growth expectations if not exceed them in the coming quarters. The report also showed revenue to be up a healthy 13% year on year while payments volume was up about 10% as well.
All that being said, there has to be some caution urged to investors who are considering getting involved at these levels. Even though the stock is at all-time highs and has impressive internal momentum going for it, rallies like the one currently underway into earnings are always dangerous. Any hint of a miss could be devastating in the short term for investors who’ve only just gotten involved. Even results that are good but not good enough could spell trouble in the form of fast and furious profit-taking as Wall Street reassesses and tries to find a fresh, fair price.
However, if that happens and assuming earnings show everything is still running smoothly, it’s worth considering any pullback to be a gift of an entry point for this best in class company that’s making all the right moves.
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