Is Visa A Buy At All-Time Highs?

With shares of Visa (NYSE:V) trading around $195, is V an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Visa is a global payments technology company that connects consumers, businesses, banks and governments across the globe to fast, secure and reliable electronic payments. The company derives revenues primarily from fees paid by its clients based on payments volume, transactions that it processes, and other related services the Visa provides. The method in which consumers and companies transact is constantly improving which has undoubtedly led to explosive growth in this area. As consumers and businesses continue to adopt efficient transaction systems, Visa stands to see rising profits.

On Wednesday afternoon, Visa also beat analyst estimates, as consumers around the world used its payment systems at increased rates. Also, the company has raised its expectations for full-year revenue and earnings. Visa showed strong growth in the United States, its biggest market, with customers in the United States spending $683 billion using Visa cards in the quarter. That growth helped stem fears about the European Commission’s plans to start limiting fees on card payments.

T = Technicals on the Stock Chart are Strong

Visa stock has seen a consistent uptrend over the last several years. The stock is now trading at all-time high prices and is poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Visa is trading above its rising key averages which signal neutral to bullish price action in the near-term.

V

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Visa options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Visa Options

19.72%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Visa’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Visa look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

20.51%

0.52%

29.53%

95.36%

Revenue Growth (Y-O-Y)

17.00%

14.74%

11.74%

14.60%

Earnings Reaction

4.73%*

5.64%

-2.33%

3.68%

Visa has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Visa’s recent earnings announcements.

* As of this writing

P = Average Relative Performance Versus Peers and Sector

How has Visa stock done relative to its peers, MasterCard (NYSE:MA), American Express (NYSE:AXP), Discover (NYSE:DFS), and sector?

Visa

MasterCard

American Express

Discover

Sector

Year-to-Date Return

29.19%

22.10%

31.61%

30.51%

25.72%

In a strong sector, Visa has been a relative average performer, year-to-date.

Conclusion

Visa facilitates transactions for consumers, companies, governments, and other entities around the world. The company recently reported earnings that have sat really well with investors. The stock has been steadily trending higher and is now trading near all-time high prices. Over the last four quarters, earnings and revenue figures have been increasing which has really pleased investors. Relative to its strong peers and sector, Visa has been an average year-to-date performer. Look for Visa to OUTPERFORM.

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