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How to Play Visa Ahead of Earnings


It's likely that Visa will announce strong earnings, sending the stock higher.

MINYANVILLE ORIGINAL Visa Inc. (NYSE:V) is a payment technologies company that provides services to businesses, consumers, banks, and governments. Visa develops technologies that enable the use of digital currency instead of cash and checks. Visa is also the world's largest credit card processor. Visa is scheduled to announce quarterly earnings today after the market closes. Analysts expect Visa to report earnings of $1.50 per share on revenues of $2.7 billion. Visa has met or beat earnings estimates four of its last five reports with actual earnings beating estimates by 4.8% on average. V has also beat or met revenue estimates five of the last five reports. Annual earnings are expected to grow 23.2% in 2012.

Mastercard (NYSE:MA), a Visa competitor, reported earnings before the market open today. Mastercard posted a 7.8% increase in third-quarter profit as cardholder transactions and payment volume increased 13% and 29% respectively, a good sign for Visa even though the rate of transaction growth is slowing. Investors are concerned that the slowing global economy could continue to weigh on consumer spending. Despite the slowdown in spending, analysts expect consumer buying to remain at levels well above those at the peak of the financial crisis.

Visa has rallied after earnings three of the last four times it announced. The stock moves after earnings on average of 3.7%. Currently the options market is implying a 3.5% move in the stock. The stock is trading around $137.75 in a 52-week range of $88.78-$143.10. Visa is up 35.87% YTD and 47.92% in the past 12 months. With Visa's strong historical performance on earnings and the better-than-expected numbers from Mastercard, it is likely that Visa will announce strong earnings, sending the stock higher.

My Trade: Buying the V Nov 135-140 Call Spread for $2.60
Risk: $260 per 1 lot
Reward: $240 per 1 lot
Breakeven: $137.60
Notes: The stock has rallied three of the last four earnings reports and strong numbers from competitors bode well for Visa.

No positions in stocks mentioned.
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