In a report rolled out Tuesday, Bernstein analyst Lisa D. Ellis and her team preview Visa Inc V’s third quarter financial results, raising their price target on the stock from $77 to $81 to better reflect earnings tailwinds and the probability of the Visa Europe put option being exercised in 2015.
On top of the price target boost, the firm selected Visa as its top pick for 2015 based on two elements:
1) Visa is benefiting from several earnings tailwinds including continued volume growth on the back of the Chase conversion and a yield increase due to its recent U.S. acquirer price boost and easy compares. Despite this, the stock’s year-to-date valuation has lagged its peers and the S&P 500.
Related Link: Jefferies Met With Visa Management And Got 'Positive Vibes;' Still Prefers Mastercard
2) The firm has “explicitly incorporated probability-weighted upside for the possibility of the Visa Europe put option being exercised in 2015,” as the analysts continue to believe “the conditions are unusually well aligned to get the deal done (e.g., ability to pay on Visa Inc.'s side facilitated by low interest rates and the Euro depreciation, willingness to consider selling on Visa Europe's side facilitated by capital pressure on many European banks, and the European payments regulation going into effect in 2016).”
The experts estimate the exercise of this put would translate into a 10 percent to 12 percent cash EPS accretion for the company in fiscal 2017, at a $20 billion price.
Bernstein maintains an Outperform rating on shares.
Shares of Visa were trading slightly higher on Tuesday afternoon.
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