Great Expectations: Visa
NEW YORK ( TheStreet) -- The economic recession rolls on, but Wall Street is still bullish on two financial companies that have weathered the financial storm -- Visa ( V) and Mastercard ( MA). It's no secret that as the recession continues, analysts expect declines in Visa and Mastercard's purchase volumes, specifically from their U.S.-based credit card businesses and lower discretionary purchases on credit and debit cards. Many large card issuers including JPMorgan Chase ( JPM), Bank of America ( BAC) and Citigroup ( C) experienced declining credit card purchases from strapped consumers. Still, the increasing use of debit cards for everyday purchases and the continuous transition from cash to electronic forms of payment present a tailwind for both companies. Analysts, on average, expect double-digit declines in profit from both companies compared to the year-earlier quarter. Visa, set to report fiscal third-quarter results late Wednesday, is expected to earn 64 cents a share, while MasterCard, slated to report early Thursday, is expected to earn $2.42 a share. Visa and MasterCard make the bulk of their money from charging fees to financial institutions that issue the cards as well as to the firms that set up and service merchants that accept the networks. Chairman and CEO Joseph Saunders, in a press release late Monday announcing the departure of Visa's president John C. (Hans) Morris and other operation streamlining, said the company has "met or exceeded" most of the financial goals established during last year's IPO. The company "continue
s to meet or exceed all our current financial guidance," Saunders said.
Analysts say that both MasterCard and Visa are also able to meet earnings estimates by cutting expenses, specifically advertising and marketing expenses, which the companies consider variable -- not fixed -- expenses. "Even with reduced consumer spending on credit cards, they are making money on the debit card side," says Adil Moussa, an industry analyst at consulting firm Aite Group. "It's really something that helped them kind of compensate from the lack of revenue that they were seeing from the credit card side. But we shouldn't really forget one of their largest sources ... they charge issuers and acquirers for different services and those are not going to change. And whether they have the volume or not these acquirers and issuers, they are still going to have to pay to Visa and MasterCard."