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Visa IPO

Written By Brian Hicks

Posted February 29, 2008

Two years after the MasterCard IPO went public, shares catapulted from $43 to more than $200.

But with greater market share and reach than MasterCard, Visa and its coming record-breaking IPO may be too good to pass up.

In a market virtually frozen by credit and bank woes, and tumultuous economic uncertainty, Visa could put an end to pent-up salivating investor demand for any company not suffering from credit issues.

What’s exciting is that if the Visa IPO prices at the low end of the estimated range, it’d blow the doors off the $10.6 billion AT&T Wireless IPO of 2000.

At the top of the estimated range, the IPO could raise up to $18.76 billion. That’s almost as big as the AT&T IPO offering and the Kraft Food $8.7 billion IPO of 2001 combined.

It’s what has the big banks excited, too, like JP Morgan (which holds about a 23% stake), Citigroup, and Bank of America. Proceeds from the IPO could easily bring them much-needed capital to strengthen balance sheets and help with capital.

Visa: Limited Exposure to Spiraling Credit Crisis

Unlike industry Capital Ones and Discover Cards, Visa is a card processor, not a lender. That means it takes money from the banks that issue cards and doesn’t extend credit. Smart move… It doesn’t have to worry about cardholder debt. That concern lies with the banks that issue the cards.

That means that Visa won’t have much exposure to the spiraling credit crisis, unlike others like Capital One and Discover that are watching share values plummet.

They’re the ones that have to be concerned that as of November 2007, credit card debt "soared at an 11.3 percent annual rate in November following an 8.5 percent rate of increase in October" and is still on the rise.

They’re the ones where share values are being beaten stilly because of charge-offs, payment delays, and higher delinquencies. Why do you think Discover Financial Services (DFS:NYSE) stock plunged from a $35 IPO price to $15? It’s a card lender, and concerns itself directly with cardholder debt.

dfs chart

But that’s not the case for MasterCard and Visa. They, like we mentioned, are card issuers… not credit issuers. And because of that, they’ll benefit as waves of struggling consumers turn to plastic to pay for rising food, and gas costs – all of which increase the fees that Visa would receive.

For Visa to IPO here, they want a piece of the action that sent MasterCard up fivefold since its IPO two years ago. And it should do quite well… for investors, too.

ma chart

Consider this. In the U.S. alone, Visa is the biggest credit card company by market share, and has great presence in other countries, where people are "just starting to use plastic instead of cash," according to the Associated Press.

Even more impressive, "the 44 billion transactions totaling about $3.2 trillion that Visa processed in 2006 nearly doubled the number of transactions by MasterCard, its biggest competitor." Visa can even boast about having the world’s largest retail electronic payments network.

And with homeowners struggling to stay above water, Visa, like MasterCard, shouldn’t have a problem. They’re benefiting as revolving credit has risen more than 11%, as of November 2007, as compared to the 6.1% of 2006 and the 3.1% of 2005.

And, they’re benefiting as credit card debt ballooned to $790 billion, rising at a "rate four times higher than earlier in the decade," says the Center for American Progress.

In my opinion, you really can’t lose betting on Visa success. If MasterCard could rally from $43 to more than $200, just imagine what Visa may be able to pull off.

Watch for the Visa IPO… It’s supposed to trade under "V." It may pay a dividend, too.

Ian L. Cooper

P.S. Shortly after recommending the Cree Inc January 2010 30 LEAPS calls (YFAAF) in our February 5th How to Invest in LEAPS article, I received this e-mail.

"Ian, I don’t share in your bullish enthusiasm with Cree. My research points to near-term downside. I hope you know what you’re doing."

I do, my friend.

I like Cree for two reasons. One, analysts hate the stock. And two, we saw early momentum on industry growth prospects and on the future of LED technology.

When we recommended those LEAPS calls, they traded around $7. Today, those LEAPS trade around $9 with further upside potential.

cree chart

As for the Oppenheimer analyst that didn’t see near-term value in the stock, ignore him.

This is a stock backed by an industry expected to exceed $1 billion by 2011, a 388% jump from the $205 million market value in 2005, with LED catalysts. Analysts can hate the stock all they want. They missed a good thing.

Congratulations on the gain. If you have an opportunity, I’d love to hear how you’re doing with it. Please leave comments below

Ian Cooper is the editor for SC Trading Pit and Pure Energy Trader.