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Re-Charged

by
Christina Nikolov
Founder/CEO, ChartWatchCentral, Inc.


Date: August 10, 2010
Company: Visa, Inc.
Ticker: V
Price: $75.27
Opinion: Bullish

Comments: For the past three months, shares of Business Services firm, Visa Inc. have been bouncing along within a very tight trading range. And even though the shares are nearly 30% off their April 26th peak of $97.19, the fundamental picture appears to be perfectly sound.

Visa's Gross Margin, Pre-Tax Margin and Net Profit Margin are 82.8%, 55.0% and 34.6%, compared with respective figures of 49.8%, 7.0% and 17.7% for the Business Services Industry. Meanwhile, sales for the most recent quarter soared 23.3% over last year, compared with a 14.2% increase for its typical peer. But its current price-to-earnings multiple of 24.7 trades at a discount to the 27.3 figure touted by its average competitor. And as if that isn't enough, Visa sports Price/Book and Price/Sales multiples of 2.5 and 8.0, versus 6.3 and 8.9 for its common rival.

Over the past five quarters, Visa's reported earnings have also beaten the consensus estimate every time, by an average of 5.5%, indicating to us that they will very likely continue to exceed the expectations of Wall Street's Prognostigators. Visa is slated to earn $3.90 during the current fiscal year, or nearly 34% more than last year's take. And in fiscal 2011, analysts are projecting another 21% EPS surge, to $4.73 per share. With the shares currently sitting at $75.27, that would put the p/e multiple based on the estimated 2010 and 2011 bottom lines at 19.3 and 15.9, which is a decent discount to the expected earnings growth mentioned above.

Taking everything mentioned above into account, along with a technical picture indicating that the shares are basing in the low $70's, we firmly believe that Visa's recent pullback is a temporary pause in the upward trek, rather than the onset of a more pronounced decline. However, for this neutral trend to become positive once again, the shares must surmount the 200-day moving average, which currently resides near $80 and the 50-day moving average also needs to turn higher.

In anticipation of an upside reversal, consider charging up your portfolio with some of these shares at the current level, or try the January 2011 $65 call at $12.95 or March 2011 $65 call at $13.90 if you want considerably more bang for your buck.

 

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