Deutsche Bank analyst Christopher Mammone has reiterates a Buy on Visa after the company reported solid Q2 results. Specifically, Marmmone was pleased by:
(i) V’s $0.11 in adj. EPS upside to consensus, especially after AXP’s warning muted expectations, (ii) material increase in LT operating margin guidance that was timed earlier than we anticipated, and (iii) evidence that V’s biz model can withstand eroding (yet steady) volume trends in the U.S. by tapping into its product (debit) /geographic mix to post solid results.
Going forward, and factoring in Visa’s new and improved outlook on its operating margins, Mammone thinks even with a big outlay in Q4 due to its sponsorship of the olympics, Visa will surprise on the upside in 2H08:
Visa is now calling for operating margins in the mid‐40% range for fiscal 2008, and in the mid‐ to high‐40% range in fiscal 2009 (vs. previous operating margin guidance of low‐ to mid‐40% range for those years). This implies that prior Street estimates were several hundred basis points too low, in our view. The biggest cost reduction we ran through our model pertained to advertising and marketing. We lopped off nearly $200mm for the remainder of fiscal 2008, while still allowing for the current period (4Q) to feature the highest spend due to Visa’s sponsorship of the summer Olympics.
Marmmone reiterates his Buy rating and ups his price target to $93.
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