“Visa
(V) and MasterCard (MA) shares dropped sharply on Tuesday, as a proposed law to
curb debit card fees could cut into transaction volumes. Visa shares fell 7.3%
to $69.25 in late New York Stock Exchange trading, and MasterCard shares
dropped 6.0% to $198.07, outpacing the S&P 500 Index's midday decline
of 1.3%.” Reuters
With
this fall the stocks of V and MA are looking over sold. On a 50-day basis both
the stocks are more oversold than any time in the past year. Currently at
$72.82 and $205.50, both, Visa and MasterCard are well below the
50D and 200D EMAs’ (V=15.77% below 50D and 10.71% below 200D; MA=14.50% below
50D and 10.62% below 200D).
Since
the Senate announced the amendments “Visa shares have declined 18% while
MasterCard shares are down 13.6%.” Reuters. On YTD (2010) basis, both the
stocks have performed negatively. Visa (though recovered) is down 16.57% and
MasterCard down 19.72% (as of 21st May). In 2010 both the stocks have lagged
behind the S&P 500 Index; where as in 2009, both managed to beat the Index
by a wide margin (see chart 1).
I
agree to the analyst’s call that price drop is “overblown”.
Fundamentally,
both Visa and MasterCard have a sound business model. They are not exposed to
any debut defaults, unlike American Express and Discovery. V and MA receive
fees every time a purchaser swaps his/her card on their networks.
In
long run, card processors have attractive businesses because of high earning
growth, strong cash flows, and the potential to benefit as increasingly high
percentages of consumer spending (emerging markets) involve card use.
"The amendment would not directly limit credit card fees, but many fear it could lead to wider restrictions.” Reuters
But others say that “it is premature to discuss the potential impact of the amendment” Reuters
Factorized to 100, in order to depict the relative
performance.
Chart 2 - Visa and MasterCard in 2010
So, are Card Processors good long term Bets??
I will be writing another post, detailing the fundamental analysis of the Card Processors in the coming week.
Till then good-bye and...
I will be writing another post, detailing the fundamental analysis of the Card Processors in the coming week.
Till then good-bye and...
Happy Investing !!!
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