Visa Is Ready For An Uptrend After A Long Consolidation

Jun.21.12 | About: Visa Inc. (V)

Visa Inc. (NYSE:V), a payments technology company, engages in the operation of a retail electronic payments network and manages global financial services. The company also offers global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities.

After a long consolidation of nearly four months, Visa's share price is showing signs of a positive breakout. Yesterday, June 20th, shares closed at $122.59, at the highest point of yesterday's trading range of $121.03-$122.59. I expect a strong rally is coming, with a potential upside of nearly 20% from here.

Fundamental Analysis

The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income, and expanding profit margins.

Visa has a market cap of $83 billion. With an estimated EPS of $6.08 for the current fiscal year, the shares are trading at a forward P/E of 20.16, significantly below the average diversified services industry P/E of 28. Shares are up nearly 20% year to date. At a Price/Book of 3.5, Visa is trading at a significant discount to its peers. The average Price/Book is 7.5 for its peers.

An estimated earnings growth of 35% CAGR makes Visa a compelling buy at current levels. Currently, there are 23 analysts who rate Visa a buy, no analysts who rate it a sell, and six who rate it a hold.

Technical Analysis

After rising nearly 20% in February, shares are consolidating in a narrow range from March. Yesterday's price movement is very encouraging for the near term. After a modest correction in May, shares started rising again from the beginning of June. The 200-DMA at $106 has been holding strong since February. Shares found solid support at the 50-DMA of $117 before rising above the 20-DMA nearly at the same level.

Click to enlarge image.Click to enlarge

The MACD gave us a strong buy signal when the share price rose above the 20-DMA, with the orange line crossing over the violet line. Both the orange and violet lines are just about to cross over the green line, which is extremely bullish for the stock.

Regarding the Bollinger Bands, the share price has already crossed over the upper band yesterday. Take a look at February's price movement and the corresponding expansion in the Bollinger Bands. I expect a repeat of February here, which could take Visa's share price near $150 in the short term.

Disclosure: I am long V.