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Visa and MasterCard Downgraded

Visa and MasterCard shares hit new 52-week-lows on Monday amid a generally upbeat day in the financial sector.



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shares hit new 52-week-lows on Monday amid a generally upbeat day in the financial sector.

Visa and MasterCard were both downgraded on Monday to market perform from outperform by Sanford Bernstein analyst Rod Bourgeois. Bourgeois also slashed his 12-month price targets by $16, to $77, and $52, to $216, respectively.

It is the second downgrade made to Visa shares in one week.

"Although many scenarios are possible, the stocks of Visa and MasterCard are probably somewhat under-valued," Bourgeois wrote in a research note to clients. "However, we see limitations on positive catalysts for Visa and MasterCard."

While it will be a few more quarters before the full impact of the Durbin regulation impacting interchange fees is known, investors should "look past" any near-term earnings beats, "especially given that longer-term business model questions are seemingly most important to the stock," Bourgeois writes.

"Moreover we see meaningful risks of additional negative surprises (making us worried about a slippery slope of negative sentiment) and we reiterate that Visa and MasterCard investors will need to get used to substantially-lessened pricing power (detracting substantially from the bull case of the past)," he writes.

Visa and MasterCard investors could be further spooked the possibility that both firms will have to reduce U.S. credit interchange fees (something that was not addressed in the Durbin amendment), which would "be another blow to sentiment" for the firms, he writes.

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Additionally ongoing card industry regulation in Europe could also cut into revenue, while the new Consumer Financial Protection Bureau could "scrutinize card fees .. and add to the string of events that are pressuring card industry economics," the note says.

Bourgeois says that the potential negatives are "generally not being anticipated" by investors.

Last week both Visa and MasterCard shares hit a new 52-week-low after Bank of America Merrill Lynch downgraded Visa to underperform, a sell-equivalent rating, from outperform. BofA Merrill Lynch analyst James Kissane cut his rating over concerns over the new

debit card interchange rules

, which would effect Visa more than MasterCard, he said.

Visa shares were falling 4% to $65.35 on strong volume of nearly 8 million shares. The stock hit a new 52-week-low of $65.16 earlier in the day.

MasterCard shares also fell to a new low of $191. The stock was more recently down 3.1% to $192.08 on volume of 1.52 million shares - slightly above MasterCard's three month daily average

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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