Cowen Throws In The Towel on MasterCard (MA) and Visa (V)
Analysts at Cowen & Co are throwing in the towel on the recent high-flying credit card processors MasterCard (NYSE: MA) and Visa (NYSE: V), downgrading both from Outperform to Underperform, citing deteriorating fundamentals. Cowen completely bypassed a Neutral rating on the two. Many have thought that both these companies would be shielded from the credit mess, since they don't take on credit risks. But, according to Cowen, they cannot escape the slowing economy.
Cowen said recent data from both MasterCard and Visa indicated deteriorating credit and debit purchase volume growth for the past 3 months, with a significant drop in October's metrics.
Cowen also made specific comments on each of the credit card processors:
For MasterCard, the firm said, "While strength in the company's non-US purchase volume has been offsetting a material deterioration in US-based purchase volumes, we expect weakening consumer spending trends in Europe and Latin America to impact MA's purchase volume metrics, hence, resulting in incrementally tougher revenue growth challenges, which could become difficult to offset by cost reductions in order to maintain healthy EPS growth rates. Finally, currency and pricing headwinds may not be fully baked into investors' expectations."
For Visa, the firm said, "While many investors owning V's shares highlight the company's high exposure to debit purchase volume as an important shield to revenue growth offsetting deteriorating fundamentals in credit card purchasing volumes, we feel that recent employment data will impact debit purchase volume growth, a scenario not fully baked into V's hefty multiple." Cowen also noted Visa premium valuation versus MasterCard, noting that Visa trades at 19x projected '09 EPS compared to 13x for MasterCard and 12x for the S&P 500.
Some of what Cowen is saying is likely already priced in the stocks, as Visa is down 35% in the last six-months and MasterCard is down 51% in that time-frame.
Create E-mail AlertRelated Categories
DowngradesInsiders' Blog
Stocks Mentioned
+0.00Related Entities
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
