Five Reasons to Embrace Visa IPO

Debit cards also have helped Visa expand into servicing merchants who rarely relied on credit cards. Most consumers are averse to paying for certain things on credit: movie tickets, parking lots, fast food and so on. But debit cards account for 85% of electronic transactions at fast-food restaurants, and today, McDonald's(MCD Quote) is Visa's second-largest merchant.

4. Visa has a few things working in its favor that could help push up profit margins in coming years. First, there are economies of scale. Since 2003, the number of transactions processed by Visa has increased by 61%. But the incremental cost of processing those transactions has risen by only 12%. So, the user cost per transaction has actually decreased by 55%, according to figures released in Visa's IPO roadshow.

Second, Visa has plans to cut operating expenses over the next two years. Management says it can eliminate $300 million through cutting personnel, professional fees and marketing and advertising costs. Finally, the company believes that it can cut its current tax rate of 41% to 35% or 36%, which it says is similar to the rate of rival MasterCard .

5. Finally, the equity plan that Visa set up last year is offering stock options to executives and employees alike. But unlike a lot of recent IPO candidates, the options are not priced far below the IPO itself, which gives insiders an incentive to cash out at the earliest possible moment.

Instead, the exercise price is tied to the offering price. So, the company has an incentive to see that its own stock rises in the aftermarket.

And Visa sees growth ahead for itself. Executives say net revenue growth will be between 11% and 15% in coming years, while EPS growth will be closer to 20%. And at the same time, the company is offering investors an annual dividend of 42 cents a share.

These are some of the stronger reasons to think that Visa will not only see a successful listing this week, but a possible strong performance over the coming months. Of course, there are some concerns that investors should keep in mind -- and I'll discuss those in a story tomorrow -- but for now this IPO may just be the tonic needed for a troubled stock market.

Know What You Own: Mastercard operates in the business services industry, and some of the other stocks in its field include American Express (AXP Quote) and Discover Financial Services (DFS Quote). These stocks were recently trading at ($42.63, +2.21%) and ($16.05, +5.73%) respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.