Option Trade 
Visa Inc (NYSE:V) Calls 
Thursday, 21st April, 2016

**OPTION TRADE: Buy the V Sep 2016 80.000 call at approximately $4.80. Place a pre-determined sell at $9.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.90.

by Ian Harvey

April 21, 2016

Visa Inc (NYSE: V), a payments technology company, is set to report fiscal second-quarter 2016 results today, April 21, 2016 after the market closes. Last quarter, the company had posted a positive earnings surprise of 1.47%.

Analysts expect Visa to report an EPS of $0.67 on revenue of $3.6B. The expectations represent a 6.3% YoY growth in earnings and 5.6% growth in revenue. Visa has seen a consistent growth in earnings and revenue in last few years.

New initiatives undertaken by the company to increase demand for electronic and mobile payment facilities are likely to have favorably impacted growth in the to-be-reported quarter. Service and transaction processing revenues are likely having remained strong.

In addition, Visa's earnings are likely to have boosted by increased card usage owing to the expanding customer base and continued growth in electronic payments.

With respect to the surprise trend, Visa delivered positive surprises in three of the last four quarters with an average beat of 7.13%.

Visa Inc has a 50 day moving average of $74.80 and a 200 day moving average of $75.12. The 1 year high stock price is $81.73 while the 52 week low for the stock is $60. Over the last 30 and 90 trading days the company share price has increased 9.88 points and increased 1.43 points respectively.

Visa is in midst of one the most important corporate restructurings since its formation in 2008. Visa Inc is acquiring its European sister concern Visa Europe for almost 21 billion Euros, which includes an upfront payment of 16.5 billion Euros (two-thirds in cash and one-third in stocks), with the remaining amount being paid on completion of specified goals.

In the previous quarter’s earnings call, its CFO Mr. Vasant has said that the deal is likely to be completed by the end of the second quarter.

Like all major multinationals deriving a significant portion of their revenues from international markets, Visa had suffered from currency headwinds in the last quarter. In its Q1 earnings call, Visa had expected the strong dollar to shave off 3% of its revenue growth in Q2. However, the dollar is down more than 4% YTD, while the Euro, Yen and Yuan have appreciated, reducing the currency impact on Visa's growth numbers.

On the profitability front, Visa expects expense growth rate to pick up in Q2. To quote Mr. Vyas from Q1 earnings call: "Expense growth rate will step-up to the mid-single-digit range with increases in personnel costs and the growth in network and processing expenses due to Russia". The company's profitability will also be impacted by the interest cost. Despite these impacts, Visa will remain strongly profitable. Last quarter, the company had reported a net profit margin north of 54% and a return on equity of 26%.

A number of large investors have recently made changes to their positions in VISA, such as:-

• Vanguard Group Inc. boosted its position in Visa Inc by 2.4% during the fourth quarter. The fund owned 114,903,414 shares of the credit-card processor’s stock after buying an additional 2,667,567 shares during the period.

• Curbstone Financial Management raised its position in shares of Visa by 97.9% in the fourth quarter. Curbstone Financial Management now owns 7,254 shares of the credit-card processor’s stock worth $563,000 after buying an additional 3,588 shares during the period.

• Fulton Bank raised its position in shares of Visa by 4.0% in the fourth quarter. Fulton Bank now owns 67,564 shares of the credit-card processor’s stock worth $5,239,000 after buying an additional 2,608 shares during the period.

• First American Trust raised its position in shares of Visa by 3.0% in the fourth quarter. First American Trust now owns 77,025 shares of the credit-card processor’s stock worth $5,973,000 after buying an additional 2,274 shares during the period.

Visa Inc had its stock rating noted as ‘Reiterated’ with the recommendation being set at ‘BUY’ yesterday by analysts at Sun Trust Rbsn Humphrey. Sun Trust Rbsn Humphrey has set their target price at $100 on its stock. This indicates the analyst believes there is a potential upside of 23.6% from the opening price of $80.88.

Also, several other equities research analysts have recently commented on the company.

• Zacks Investment Research upgraded Visa from a “sell” rating to a “hold” rating in a report on Monday, January 4th.

• Barclays raised their price objective on Visa from $85.00 to $89.00 and gave the company an “overweight” rating in a report on Tuesday, January 5th.

• Finally, Evercore ISI decreased their price objective on Visa from $85.00 to $84.00 and set a “buy” rating on the stock in a report on Tuesday, January 5th.

Eight investment analysts have rated the stock with a hold rating and twenty-seven have given a buy rating to the company. Visa presently has an average rating of “Buy” and an average target price of $90.16.

Harvey’s Options Volatility Indicator

Conclusion

Visa stock is facing headwinds from declining cross-border payments and falling oil prices. The headwinds are likely to persist in short-term as the global growth continues to disappoint and the likelihood of an increase in oil prices looks remote. However, Visa's fundamentals look solid. It has posted revenue growth of 11% in the previous quarter, has an operating margin north of 65% and is expected to grow its EPS at over 16% over the next five years. Visa stock remains a buy on its solid fundamentals.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the V Sep 2016 80.000 call at approximately $4.80. Place a pre-determined sell at $9.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.90.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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