NEW YORK (
(V - Get Report)
(MA - Get Report)
were lower in early Friday trading, off 0.5%, and 0.3% respectively, as
analyst Greg Smith downgraded both companies, citing full valuations.
Smith downgraded Visa to "neutral" from "buy," saying he does not see any major catalysts in the future, and expects the stock to perform along with the
"Our positive fundamental view on Visa remains unchanged as we still view the stock as the single best long-term way to play the secular growth in electronic payments," Smith wrote, in his note. "With that said, headline risks are incrementally more of a concern now." He kept his $175 price target on shares.
There has been some concern that Visa Europe would eventually be sold to Visa (the two are separate companies, though they share the same name). Smith believes that transaction would be beneficial to earnings by as much as 6% to 7%, but there are others on Wall Street who feel that Visa would be forced to pay up for Visa Europe, thus diluting any potential benefits.
Visa has a call option to buy shares in Visa Europe, while the European banks that own Visa Europe have a put option to sell the shares to the U.S.-based Visa. The put option is defined as a risk by Visa, as it would force Visa to spend billions to buy the company, and could force Visa to tap the public markets to pay for the transaction, either through debt or selling equity.
MasterCard was also on the chopping block for the same reason; valuation, but Smith noted that some of the recent momentum in the payments space has moved to Visa from MasterCard as it faces tougher comps ahead. "Now, MasterCard is growing over these wins while we also sense a general momentum shift towards Visa and away from MasterCard," Smith penned in his note. "Visa is clawing back some of its lost debit market share and with Visa's new 10-year agreement with Chase, we expect MasterCard to lose some of its business with Chase."
Written by Chris Ciaccia in New York