Visa (NYSE: V), the famous credit and debit card business, which competes with MasterCard (NYSE: MA) and American Express (NYSE: AXP), reported results for the fourth quarter on Thursday. I came away from them feeling pretty bullish.
No, it wasn't so much the numbers as it was the fact that the credit-card concern constructed a litigation settlement with Discover (NYSE: DFS). The latter had antitrust issues with Visa, and it was a part of the company's story that bothered me. Visa will pony up almost $1.9 billion to Discover to make everything hopefully okay between the two (for more about the settlement, check out Elizabeth Harrow's post). Most of the money was already set aside in a fund in anticipation of the settlement. That's awesome.
And as for earnings, well, Visa lost money on a GAAP basis during Q4 driven by the litigation provision. But on an adjusted basis, excluding that provision and other charges, Visa earned $0.58 per diluted share. That was a penny better than Wall Street expectations.
This makes the Visa story even more attractive than it already was. Honestly, as a long-term investment, Visa should be a winner. I know the economy doesn't rule right now, but I don't think there's anyone out there who believes that credit cards are going away.
When American Express (NYSE: AXP) announced its financial results Monday, earnings were down from last year's but not by nearly as much as Wall Street had feared. The message in that may be that the consumer is not quite as bad off as economists believe. The company's stock moved up on the news.
American Express reported a profit from continuing operations of 74 cents per share, higher than the 59 cents per share analysts polled by Thomson Reuters predicted. AMEX loan write-offs rose only modestly from the second quarter to 5.9% from 5.3%
The firm's management did not have much positive to say about the next quarter, but the fact that write-offs were relatively modest and that the company's revenue was up slightly is some sign that credit card users have not died and been buried. There is still reasonable retail commerce going on, based on the Amex numbers, and the huge increase in dead beats has not materialized.
Write-offs at Amex may get worse, or not. No one would have been terribly shocked if 7% or 8% of the company's customers were well behind in payments. News of the collapse in consumer spending led many people to that conclusion.
Fortunately, things were not that bad, and Amex shareholders got a little reward.
Douglas A. McIntyre is an editor at 247wallst.com.
Wall Street's optimism in last week's preview about the earnings of tech stocks wasn't misplaced, as there were many more positive surprises than negative ones among the stocks we looked at. This week will bring plenty more data for investors in and watchers of the sector to mull over. Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), and Microsoft Corp. (NASDAQ: MSFT), for example, are expected by analysts surveyed by Thomson Financial to post modest earnings gains from a year ago, to $1.11 per share (on $8.1 billion in sales), $0.72 per share (on $31.3 billion in sales), and $0.47 per share (on $14.8 billion in sales) respectively. All three of these companies ended the week closer to their 52-week lows than highs, and analysts on average consider them each a buy.
Here's a look at some of the week's biggest expected earnings gainers and decliners in the sector:
Baidu.com Inc. (NASDAQ: BIDU): $1.25 per share (+44.0%) on revenues of $134.7 million (+103.2%)
Broadcom Corp. (NASDAQ: BRCM): $0.44 per share (+38.6%) on revenues of $1.3 billion (+33.8%)
QLogic Corp. (NASDAQ: QLGC): $0.31 per share (+29.0%) on revenues of $170.0 million (+21.2%)
FLIR Systems Inc. (NASDAQ: FLIR): $0.32 per share (+28.1%) on revenues of $275.2 million (+44.0%)
Juniper Networks Inc. (NASDAQ: JNPR): $0.30 per share (+26.7%) on revenues of $927.4 million (+26.2%)
Waters Corp. (NYSE: WAT): $0.75 per share (+17.3%) on revenues of $391.6 million (+11.1%)
American Express (NYSE: AXP) closed at $37.43 Wednesday. Friedman Billings Ramsey says "Considering AXP needs to roll over 32% of its total managed debt (both corporate debt and securitized debt) within the next six quarters, we believe there is a risk there could be a material increase in the funding costs for AXP and thus materially reduce profitability." AXP overall option implied volatility of 48 is above its 26-week average of 45 according to Track Data, suggesting slightly larger price movement.
Capital One Fin'l (NYSE: COF) closed at $41.29 Wednesday. COF October option implied volatility of 76 is above its 26-week average of 65 according to Track Data, indicating larger price movement.
Discover (NYSE: DFS), an electronic payment services company, closed at $14.59 Wednesday. DFS overall option implied volatility of 63 is above its 26-week average of 60, suggesting non-directional price movement.
MasterCard (NYSE: MA) closed at $243.32 Wednesday. MA overall option implied volatility of 43 is near its 26-week average, indicating non-directional price fluctuations.
Visa (NYSE: V) closed at $74.57 Wednesday. V September option implied volatility of 42 is near its 23-week average, suggesting non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
The bear came back today after a long nap. Financial stocks led the DJIA lower today on three key pieces of news, not at all tied to each. Some may call today profit taking, some might be disappointed that the ECB and UK didn't give any concessions on overnight interest rates. Oil was up over $1.00 and back over the $120 mark. But no matter how you call the day, it looked like another day of Chinese Water Torture in another bear market.
Below are today's unofficial closing bell levels: D.J.I.A. 11,431.19 -224.88 -1.93% NASDAQ 2,355.73 -22.64 -0.95% S&P 500 1,266.14 -23.05 -1.79% 10YR T-Bond 3.935% -0.113% 52-Week Lows Top Analyst Upgrades Top Analyst Downgrades
American Express Company (NYSE: AXP) was another huge loser after Moody's put the credit card operation debt on negative credit watch. As that affects some $89 Billion in securities and deposits, you know this makes people nervous even if the debt ratings agencies have proven to be as worthless as gold to a dead man. Shares were down almost 5% at $36.06 in today's final minutes.
Back in 2001, Concur Technologies, Inc., (NASDAQ: CNQR) hit a low of 31 cents per share. At that time, investors had lost all confidence in the Internet. What's more, Concur was in an un-sexy space; that is, a provider of software to help companies with travel expenses.
But the company's CEO, Steve Singh, was still a believer and thought the market opportunity was huge.
Well, as of now, things are starting to pay off. In fact, this week, Concur announced that it received a $251 million strategic investment from American Express (NYSE: AXP) at $39.25 per share. There is also a warrant to purchase an additional 1.28 million share (see more of today's earnings news).
Hank Paulson led the charge this morning talking about the need and credibility of the GSE's. Oil was up for a while but after Tropical Storm Dolly headed further south than the oil and gas infrastructure that locked in heavy oil selling. The major focus continues to be earnings and financial stocks in particular. Below are today's unofficial closing bell levels: DJIA 11601.60 (+134.26) S&P500 1276.80 (+16.80) NASDAQ 2303.96 (+24.43) 10YR T-Note 4.097 (+0.03%) 52-Week Lows Top Analyst Calls
American Express Company (NYSE: AXP) was one of the more poor financial stocks today after the company choked on earnings last night. It is also facing deteriorating business despite it being thought of as the highest quality credit card around. Shares were down 9.2% at $37.13 in today's final minutes.
American Express (NYSE: AXP) saw a big sell-off in its shares during the after-hours session on Monday following the release of its second-quarter earnings numbers. The shares already closed down over 11%.
It isn't difficult to comprehend this one. According to Earnings.com, Wall Street was hoping for the credit company to make 83 cents per share. American Express only delivered 57 cents per share from continuing operations. Not only did the company disappoint the Street by a very wide margin, but it disappointed itself, since that 57 cents per share represents a 35% drop compared to the bottom-line results achieved a year ago.
Yep, the financial crisis is still with us. American Express needed to significantly add to its credit reserves. Management stated that the economy is having a negative effect on its cardmembers, and that previous guidance can no longer be relied on. Translation: don't buy this stock! At least, that's my opinion.
I simply can't see allocating investment funds to American Express at this point. If investors wanted to get some exposure to plastic, all they would need to do is consider Visa (NYSE: V) or MasterCard (NYSE: MA). Both of these businesses are based primarily on transactions, not on credit risk. Whenever a card is used, these businesses get a little cut. And that adds up, my friends. Granted, both of these companies sold off on Monday and have been weak lately, and they have litigation risk, but I'd at least look at them for the long-term. Over time they should do well.
American Express, however, is way off my list of potential investment ideas. Not even going near this one. Name a timeframe (e.g. year-to-date, one-year, five-year, etc.), and you'll find that the stock is down. The economy is going to have to turn sharply before I even remotely consider it.
Disclosure: I don't own any company mentioned; positions can change at any time.
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.minyanville.com.
Lot's going on today as I juggle the end of June. With time constraints on both sides of this screen in mind, I humbly offer the following thoughts:
I covered the incremental "fade" exposure in Google (NASDAQ: GOOG) (put out near the opening) and I'm now in watch mode.
It's tough to tell how much of the big beta action is quarter-end proppage and how much is legitimate demand. As I covered my American Express (NYSE: AXP) earlier--and continue to have exposure in Wachovia (NYSE: WB)--I'm leaving it on for the time being (and yes, subject to change).
And yeah, I'm trading around that ugly duckling--nibbling under $15 and trading the swings. There's no putting lipstick on that pig--using it as my vehicle of choice has thus far been wrong. It ain't over till our interns sing, however, so I'm fighting the good fight.
That sorta brings up the question du jour: Are we gonna see quarterly inflows... or quarterly outflows?
The upside seems begrudging. Of course, after the decline we've seen, you'd be grudging too if you were Hoofy.
Somebody call Armond Goldman! l I'm starting the South Beach Diet on Monday, lest anyone wonders what is happening to my sense of humor.
The scariest thing on my screen? The VXO is down 6% today. I repeat, the VXO is down 6% today. Ruh roh...
Mastercard (NYSE: MA) shares are trading higher today after the company announced it will pay competitor American Express (NYSE: AXP) up to $1.8 billion to settle an antitrust lawsuit. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MA.
After hitting a one-year low of $120.00 in August, the stock hit a one-year high of $320.30 in May. MA opened this morning at $291.10. So far today the stock has hit a low of $290.10 and a high of $295.16. As of 12:40, MA is trading at $294.10, up $13.17 (4.9%). The chart for MA looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $195 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in four months as long as MA is above $195 at October expiration. Mastercard would have to fall by more than 33% before we would start to lose money. Learn more about this type of trade here.
I love the long-term prospects of Visa (NYSE: V) and MasterCard (NYSE: MA), but I do have to concede that a pesky lawsuit by Discover (NYSE: DFS) is the one big fly in this story's soup. According to the following article, Discover wants both credit-card companies to pay $6 billion for perceived violations of antitrust regulations. Unfortunately, these damages could be tripled if Visa and MasterCard lose. One of the big problems here is that American Express (NYSE: AXP) already won a settlement of $2.1 billion from Visa late last year and the company established an escrow fund worth $3 billion for litigation payments.
I'll admit, this lawsuit does give me and my credit-card investment thesis a little case of the shivers. After all, tripling $6 billion to $18 billion means that a huge amount of money is in play here, and a successful outcome for Discover would hamper the stocks of the two big card entities. When you read through the litigation risks in Visa's SEC filings (out of MasterCard and Visa, the latter is my favorite since it is still relatively fresh off its IPO and MasterCard has already had a big run), they are pretty scary. And the fact that the $6 billion figure just came to light this week has probably soured the perception of some investors and analysts. Nevertheless, all the previous litigation talk didn't stop Visa's stock from taking off after its IPO earlier this year.
This week's Barron's [subscription required] reverses itself -- after panning Berkshire Hathaway Inc (NYSE: BRK.A) in December 2007 it has now reversed course -- with a hedge from a short seller. Since panning Berkshire in December -- when it traded for $143,000 a share, the stock has lost 14% so Barron's was right then. Is it right to bet on a rise in Berkshire now? I really don't know because I don't find either the bear or the bull case persuasive.
Why did Barron's pan Berkshire back in December? As I posted, Barron's bear case on Berkshire was simply that it was overvalued on the basis of its book value and earnings growth. Berkshire's ratio of market value to book value was then at 1.8 times its September 30 book value, of $77,800 a share. That was above its average of 1.6 in the past five years.
It was also valued at 23 times estimated 2007 operating profits of $6,300 a share. 2008's profits were then expected to be similar to 2007's. If Berkshire were then valued at 1.7 times book value, a premium to its five-year average, Barron's estimated that stock would trade at $132,000.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
In the battle for "cool history," American Express (NYSE: AXP) wins this one hands down. The company was started in 1850 as an express delivery service. At the time, the U.S. Postal Service was slow and unreliable, and sending anything important or valuable was ill-advised. The American Express Company was known for its "expressmen," who delivered valuable packages all over the country, usually on horseback or with stagecoaches.
After establishing a strong reputation for delivery service, the company later decided to phase out deliveries and move into financial services. They had delivered countless documents for banks, and the money business was appealing. American Express first offered money orders in 1882, followed by travelers cheques in 1891. The travelers cheque business was the main focus of the company for many years.
In 1958, the company gave in to market pressures and issued its first charge card. For almost 30 years, though, the card was not to be used as a "credit" card. All balances were to be paid in full each month. In 1987, that changed as American Express finally issued a card that allowed revolving balances.
Visa (NYSE: V), the famous credit and debit card business, which competes with MasterCard (NYSE: MA) and American Express (NYSE: AXP), reported results for the fourth quarter on Thursday. I came away from them feeling pretty bullish. 
Wall Street's optimism in 
American Express
The bear came back today after a long nap. Financial stocks led the DJIA lower today on three key pieces of news, not at all tied to each. Some may call today profit taking, some might be disappointed that the ECB and UK didn't give any concessions on overnight interest rates. Oil was up over $1.00 and back over the $120 mark. But no matter how you call the day, it looked like another day of Chinese Water Torture in another bear market.
Back in 2001, 
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit 
I love the long-term prospects of 
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