KeyBanc Lowers Estimates and Price Targets On Payment Processors MasterCard (MA) and Visa (V)

January 15, 2009 9:03 AM EST

KeyBanc is lowering estimates and price targets for payment processors, including MasterCard (NYSE: MA) and Visa (NYSE: V). The firm said they are taking a far more cautious approach than the Street and are reducing our volume and transaction assumptions virtually across the board.

The firm cut its price target on MasterCard from $230 to $200, maintaining a Buy rating. The firm expect MasterCard's GDV growth to go from 12.4% in 2008 to 6.4% in 2009 on a local currency basis, and are forecasting a U.S. credit/charge volume decline of 5% in 2009. The firm said, "We are reducing our estimates for MA for the same reason: lower card volume growth globally and increased headwind due to foreign exchange. We are now projecting 2009 revenue growth of 5%, compared to our previous estimate of 7%, and we are expecting EPS of $9.73 in 2009 (previously $10.40). Our 2009 EPS estimate implies ~14% year-over-year growth, as we believe that MA will be able to increase its operating margin by roughly 290 basis points owing to lower advertising and marketing (A&M) and general and administrative spending as a percentage of revenue. We are introducing our 2010 estimates: 9% revenue growth and EPS of $12.30 (which implies 26% growth). We are assuming 580 basis points of margin improvement in 2010. Our 2010 estimates compare to consensus estimates of 10% revenue growth and EPS of $12.05."

The firm cut its price target on Visa from $70 to $68, maintaining a Buy rating. The firm said, "While V's U.S. debit volume growth has held up far better than has its credit volume growth in recent quarters, we expect both, as well as credit and debit volume growth elsewhere and cross-border volume growth, to continue to decline over the next few quarters (with a pickup starting in 3Q10). Consequently, we are reducing our FY09 and FY10 revenue growth assumptions from 9% and 11% to 7% and 8%, respectively. We are slightly reducing our EPS estimates for FY09 and FY10, from $2.64 and $3.18 to $2.60 and $3.15 (which imply growth of 15.5% in FY09 and 21.4% in FY10, compared to our previous assumptions of 18.1% and 20.6% growth), respectively."

The firm also cut its price targets on Heartland Payment Systems (NYSE: HPY) (from $25 to $23) and Wright Express Corp. (WXS) (from $20 to $18), maintaining Buy ratings on both.

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