Credit-card processor Visa (V) cut costs and reported more transactions, pushing shares up 4% in midmorning trading.
Despite the recession and fears of diminished consumer spending, Visa reported earnings Tuesday evening of 69 cents a share, compared with a loss of 45 cents a share in the year-ago quarter. Although Wall Street analysts on average expected earnings of 72 cents a share, the announcement of a $1 billion share buyback plan boosted confidence.
The San Francisco-based credit giant also said it expects revenue growth at the lower end of its 11%-to-15% forecast range in 2010. It affirmed earnings per share growth at more than 20% through 2010. And CEO Joe Saunders added that the company is starting to see a global pickup in transactions, through fees, particularly on high-margin cross-border purchases. "We are feeling more positive about trends for the first time in a long while," Saunders said on Tuesday, pointing out that in the September quarter Visa reported processing 10.5 billion transactions, a 90% increase over the prior year period.
The company’s growth rate in September expanded to 10%, the company said, and that the trend had held up through Oct. 18, according to its most recent figures.
Greg Smith, an analyst at Duncan Williams, sees Visa as poised to rack up solid results rapidly after its cost cuts. "Although current operating margins are already running in the 50% range, we still see margin expansion ahead for Visa," he wrote Tuesday. "In short, Visa’s network is built and paid for so the company is able to process additional transactions at very low incremental costs. In addition, we expect the company to improve its marketing efficiency, which should aid margins as well."
SunTrust Robinson Humphrey analyst Andrew Jeffrey wasn't as optimistic, writing Tuesday that he expected the stock's upside to be about 20% over the next 12 months, limiting its valuation potential despite the global recovery in electronic payments.
Bottom Line: Buy
Visa's business model means it gets paid no matter how much customers spend, and whether that's through credit cards or debit cards, revenues will rise as the plastic comes out.
Coal producer Massey Energy (MEE) reported a 68% drop in third-quarter profits, sending shares down 8.7% in midday trading.
Although it beat Wall Street estimates with earnings of 19 cents a share, Massey was hit by lower sales volume and weaker pricing. Massey earned 61 cents a share a year ago. Analysts on average expected earnings of 18 cents a share for the third quarter.
A relatively cool summer cut power demand, as did budget-conscious households trying to save money in a severe recession. Also, natural gas-fired power plants were used more heavily as gas prices dropped.
Massey President Baxter Phillips said demand was picking up again as cool weather returned. "While we have idled some mines, we have focused on increased production in other mines with higher quality coal and lower costs," he said in a Wednesday conference call. "Most of these mines have returned to 50 hour workweeks."
Michael Dudas, an analyst with Jefferies & Co., said the coal market is improving for U.S. based producers, and that the company was navigating a difficult environment as well as it could. "We continue to support Massey Energy as the largest, lowest cost player in Central Appalachia with well capitalized assets," he wrote. "In the current market environment, we are pleased with management's production and capital spending discipline, cash generation and attention to extracting value from its leading coking coal reserve position."
Dahlman Rose analyst Daniel Scott said cutbacks weren't enough to boost his own view of the stock. "Massey’s bottom line was solid thanks to strong cost control efforts," he wrote Tuesday. "We are concerned, however, about especially low steam coal sales volumes and the company’s weak met price realizations amid current firming steel market conditions."
Bottom Line: Hold
There may be some overselling here, and a seasonal pickup could bolster the coal market in a cold winter.