Event: V reports fiscal Q1 earnings after the close tonight. The options market is implying about a 2.5% move vs the 4 qtr avg of about 4%, and the 8 quarter avg of about 2.75%.
Price Action / Sentiment: V has been a huge winner, up 60% in the past year, moving its market cap from around 70 billion to around 110 billion today.
The street remains positive on the name with 28 Buys, 10 Holds and 1 Sell, but only an avg 12 month price target of ~$167.
Options open interest is evenly split between calls and puts, while volumes in the past month have been skewed 1.4 to 1 towards calls.
Technicals: V stock has been in an incredibly steady uptrend, especially given its size. The 2 year chart shows a stock that has only traded under its 50 day moving average (in pink) for a few months, and hasn’t even come close to touching its 200 day moving average (in black) since August 2011:
Based on Mastercard’s price action after a strong earnings report last week (the stock opened at all-time highs, only to fall right back into its trading range), I think the appetite for new buyers in the payment processors is close to exhausted in the short-term. The 50 day ma around 154 should be initial support, and the 2013 closing level of 151.58 is another important level on the downside. The stock’s all-time high of 162.77 is the only level of resistance.
Fundamentals / Valuation: The bullish drivers for the stock have been:
- Secular shift to electronic payments. That’s been an important driver of 15% sales growth and 25% earnings growth over the last couple years. Sales growth is projected to be 11% over the next 2 years, coupled with earnings growth of around 15%.
- International adoption of card payments. Visa has historically had a revenue split of 60% U.S., and 40% international. Over time the international growth is expected to be the driver as adoption of alternate payments spreads.
- New payment technologies. As mobile payments systems expand (an area of focus for both GOOG and AAPL), new transaction processing revenue opportunities open up for V.
These positives are all well and good, but what are investors paying for the good news here? Herein lies the problem with the bullish thesis. The lifetime chart of the Visa P/E multiple: