Visa: Analysts Ignore Weak Guidance, Up Estimates

Citi raised Visa (V) estimates and target price following a strong fiscal Q2. FY08 EPS jumped to $2.09 from $1.94 and FY09 EPS goes to $2.59 from $2.48. One-year target price is raised to $82 from $78. Citi:

We attribute the earnings outperformance in the quarter primarily to lower than expected volume and support incentive contra-revenues (10% below our model) and operating expenses (5.6% below our model). V remains rated a Hold.

Key takeaways from the quarter include: 1) the company saw no deceleration in U.S. growth from a weakening economy, 2) fiscal 3Q revenue growth should be at the high end of V’s stated 11-15% range on solid Jan-Mar trends, and 3) V expects lower operating margins in fiscal 2H than in 1H due to higher levels of advertising spending associated with the Olympics and investments in new products. This trend is in line with our original model; nevertheless, our EPS estimates still increase due to higher net revenue and lower cost outlook.

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