Visa Charges Higher on Earnings Beat, Retreats On Market Weakness

Visa Inc. (V), the worlds largest credit-card network, reported better than expected earnings Wednesday after the bell.  While the Street had been expecting profits of $0.91 / share on revenue of $1.92 billion, the global transactions giant came in with profits $1.02 / share on revenue of $1.96 billion.  The company also forecasted a rosy outlook, projecting earnings growth of greater than 20% for FY 2010 along with sales growth of 11% – 15% and operating margins above 50%.

Somewhat surprisingly, it was debit cards, rather than credit cards, that propelled Visa to the earnings beat.  Consumers, unable or unwilling to draw on as much credit as they did during the boom, began using their debit cards more often than their credit cards, and apparently, their debit cards increasingly over cash.  Processed transactions grew 12% year-over-year to 10.9 billion, assisting total payment growth of 9% to $769 billion.  Total Visa-branded cards being used grew 5% to 1.8 billion.

Shares rallied off the good news, a rarity these days, trading up nearly 3% during the after-hours session.  However, weakness in the broad market proved to much for the big V.  Shares last traded in the green at about 3:40 PM, but dipped into the red and stayed there until the close, finishing the day at $83.05, down $0.47.  This was yet another example that, when there is weakness in the market, even stocks that have all the reasons in the world to go up will nevertheless often trade down.

As illustrated in the chart below, V faced some resistance at the $88.50 level during December and January before dropping through it’s 50-day moving average at the beginning of our current corrective period.  The moving average served as resistance for about 2 weeks leading into the earnings report, at which point shares broke through before closing back below the line.  As long as the market stays weak, I wouldn’t recommend going long anything, but I would definitely recommend keeping Visa close to your mind.  The company proved that they are able to maintain solid growth in a bad economic climate and it’s almost a no-brainer long term, as the rise of emerging economies will inevitably give rise to more plastic.  So, stay vigilant, and think about getting into Visa when the Bull returns.  Look for a break of the 50-day MA, preferably on high volume, as a good opportunity to open up a position.

Disclosure: No Holdings in V.