Amid talk of a "fiscal cliff," there is at least one brightspot
on the U.S. economic horizon: Consumer spending.
In October, consumer spending saw its largest gain in half a
year, rising 0.8% from the previous month, while income growth
notched up 0.4%. One company that should benefit particularly from
a buoyant spending environment is global payment giant,
The company -- which connects millions of customers with an
extensive network of 15,000 financial institutions across more than
200 countries -- makes it possible for people to easily pay with
plastic, instead of cash or check. Visa also boasts one of the
world's best payment processing networks; the company can securely
and reliably manage more than 10,000 transactions per second.
While Visa certainly faces stiff competition, especially from
, it currently is top dog in the electronic payment space. In 2011,
more than 66% of all cashless transactions in the United States
were through Visa.
Visa also has a strong presence internationally. Cashless
transactions are becoming increasingly popular worldwide, helping
the company achieve 12% international growth in the most recently
reported third quarter. Visa's goal is to generate at least 50% of
future revenue from outside the United States.
As this two-year chart shows, the strong uptrend indicates
traders arebullish on the stock:
Since Visa's December 2010 low of $66.11,shares have more than
doubled. The stock has been in amajor uptrend since June 2011, and
shows no sign of slowing down. Shares recently broke a small shelf
of resistance near $136.93, which acts as current support,
bullishly completing a smallascending triangle formation.
Last week, the shares broke out above $135 resistance, hitting
an all-time high of $146.41. The stock has since retreated
slightly, presenting a potentially profitable buying
The bullish technical outlook is supported by strong
fundamentals. For 2012, analysts expect revenue will jump 11%, to
$11.5 billion, from $10.4 billion last year. Holiday spending --
which many people put on their Visa cards -- should help drive
anticipated growth. For the first quarter of 2013, analysts project
revenue will increase 10.7%, to $2.9 billion, from $2.6 billion in
the comparable year-ago period.
Theearnings outlook is similarly strong. Due to increased
worldwide transactions, analysts expect full-year 2012 earnings
will rise nearly 17% to $7.23 per share, from $6.20 last year. As
global transactions continue to grow, first-quarter 2013 earnings
are projected to climb 12.5% to $1.80 per share, up from $1.60 per
share in the year-earlier quarter.
In addition to a strong fundamental outlook, the company has a
cleanbalance sheet . Visa has $2.8 billion in cash and nolong-term
debt . In the most recently reported third quarter, the company
spent $324 million to repurchase 2.5 million shares. Another share
repurchase program of 1.5 million shares is planned.
The company also offers a $1.32 per share forward annualdividend
, which works out to about 1% per share. Management has
consistently increased the annual payout every year since the
company went public in 2008.
Given the bullish technical outlook, supported by strong
fundamentals, I plan to go long on the global payment company.
Risks to consider:
Store-specific mobile payment applications, through devices
like smartphones, are becoming more popular. For example, you can
now go to
and purchase your coffee through your mobile phone, via an
electronic payment system called Square Wallet. Visa will need to
respond to this competitive threat to remain healthy in the future.
However, the company does currentlyoffer some mobile payment
options and should continue to progress in this direction.
Action to Take -->
Place a buystop order on V at $146.43, just above its recent high.
Set stop-loss at $135.91, slightly below current support. Set
initialprice target at $176.30 for a potential 20% gain by
This article originally appeared on TradingAuthority.com:
Stock in Major Uptrend Could Break Out for
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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