Android app on Google Play

2013 Seen as Another Stellar Year for Visa (V) and Mastercard (MA), PTs Raised at Barclays

January 2, 2013 2:49 PM EST Send to a Friend
Get Alerts V Hot Sheet
Price: $212.36 -0.79%

Rating Summary:
    15 Buy, 7 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 26 | Down: 31 | New: 6
Trade V Now!
Join SI Premium – FREE
Visa (NYSE: V) and rival Mastercard (NYSE: MA) are solidly higher Wednesday as 2013 is expected to be another strong year for the credit card processors.

Analysts at Barclays lifted price target on both as they roll forward price targets to reflect their CY14 estimates. The price target on Visa move up from $155 to $170 and on Mastercard from $505 to $575. Both are also Overweight-rated.

Analyst Darrin Peller said despite Visa and Mastercard rising 49% and 32% respectively in 2012 (versus 13% for the S&P 500) they still have among the best risk/reward profiles in the space. They would expect both to again outperform this year with strong EPS growth driven by relatively resilient spending volume and transaction metrics (supported by strong secular growth trends), high incremental margins, and a greater level of share repurchases versus prior years.

While the firm prefer V over MA over the near term given V's more favorable revenue, product, and geographic exposure, they think MA has similarly strong opportunity longer term, with potentially greater upside given its smaller size, geographic positioning (Europe) and margin expansion opportunities. That said, with shares currently trading at 19-20x CY13 EPS estimates, (likely limiting opportunities for further multiple expansion, in their view), in the absence of a meaningful deterioration or acceleration in volumes or transactions vs. their model, they see share appreciation likely to be primarily driven by EPS growth.

Three key drivers that will likely to provide upside or downside potential to FY13 EPS estimates are 1) rebates and incentives; 2) operating margin expansion; and 3) share
repurchases.

On Visa, the firm is currently modeling FY13 EPS of $7.30 (representing ~17% growth over FY12 EPS). Their upside case results in FY13 EPS of $7.66 (representing ~24% growth over FY12), and assumes incentives in-line with the level seen in FY12, 100bps of operating margin expansion and ~$5.4bn in share repurchases. Their downside case results in FY13 EPS of $7.13 (representing ~15% growth over FY12), and assumes incentives at the high end of V's FY13 guidance, a decline in operating margin of ~50bps, and ~$2.4 billion in share repurchases (in-line with the level seen in FY12).

On Mastercard, they are currently modeling 2013 EPS of $25.45 (representing ~19% growth over its 2012 EPS estimate, when normalizing 2012 EPS estimate for a 32% tax rate). The upside case results in 2013 EPS of $27.14 (representing ~27% growth over their normalized 2012 EPS estimate), and assumes incentives ~100 bps lower than their estimate for 2012 (given that there were two large renewals signed during 2012), 100bps of operating margin expansion and ~$4bn in share repurchases. The firm's downside case results in 2013 EPS of $24.49 (representing ~15% growth over their normalized 2012 EPS estimate), and assumes incentives ~50 bps higher than their estimate for 2012, a decline in operating margin of ~50bps, and ~$1 billion in share repurchases (slightly lower than share repurchases year-to-date in 2012).

For an analyst ratings summary and ratings history on Visa click here. For more ratings news on Visa click here.

Shares of Visa are up 1.6 percent to $153.99, while Mastercard is up 2.94 percent to $505.72.




You May Also Be Interested In


Related Categories

Analyst Comments, Analyst PT Change

Related Entities

Standard & Poor's, Barclays

Add Your Comment