Visa on the Offensive: Analyst

Jefferies analysts recently met with Visa Inc. (NYSE: V) management and praised the company's competitive positioning, product strategy, post-Durbin initiatives, business model resiliency (regardless of macro climate), and robust EPS growth.

"With shares trading at 14 times of calendar 2012 price-to-earnings, 13 percent discount to MasterCard Inc. (NYSE: MA), we believe current levels represent an attractive entry point," said Jason Kupferberg, an analyst at Jefferies.

"Our meetings with various members of the Visa management team yielded a consistent message, that despite regulatory and macro uncertainties, the company remains fundamentally offensive-minded and revenue growth-focused, as evidenced by proactive initiatives such as the recently introduced network participation fee for U.S. merchants, and increasingly aggressive investments outside the U.S., which are yielding better than expected results (i.e. Brazil)," said Kupferberg.

Kupferberg said Visa is highly confident in achieving its fiscal 2012 guidance that was released last month, even if the U.S. encounters a double-dip recession.

Kupferberg believes this confidence is underscored by powerful, enduring secular trends (displacing cash and checks globally), absence of Western Europe in the mix, flexible cost structure (especially Acquisitions and Mergers), tax rate opportunities, and lots of excess cash for buybacks.

Visa has not yet communicated details of its new network participation fee to merchants, but Kupferberg expects this fee will take effect around the same time as Durbin's anti-exclusivity provisions (April 1, 2012).

Kupferberg was also encouraged to learn that Visa's post-Durbin issuer contract renegotiations are progressing well, and Visa seems optimistic that it can offer issuers an ample value proposition to retain its PIN debit Interlink brand in the post-Durbin world, though he believes there is still uncertainty on this point.

"In the near-term, Visa seems more focused on rolling out its digital wallet in the e-commerce world, leveraging last year's CyberSource acquisition. Visa is also positioned longer-term to capitalize on mobile payments at the physical point of sale (POS), but adoption is expected to be slow," said Kupferberg.

Visa stock closed Friday's regular trading down 0.82 percent at $83.83 on the NYSE.