Goldman Removes Visa From Conviction Buy List After Stock Plunges

Who would have thought that all it takes to be removed from that holiest of holys, the Goldman conviction buy list is a simple 12% plunge in the stock? Yet after yesterday's Fed decision on debit card interchange fees, Goldman analyst Julio C. Quinteros Jr. has validated precisely this thesis. And for all those who think being on the CL with a Buy rating does much if anything for one's stock, here is the kicker: "Since adding V to the Conviction List on July 9, 2010, the shares are down 13.2% vs. +15% for the S&P 500 (-22.8% and +12.1% over 12 months)." But luckily for those who suffered substantial losses yesterday, little else has changed: "We make no changes to our  estimates or price target"... of $93/share. One wonders what happens to the other 50 some Conviction Buy companies (and one sell) should the reality of the massively stimulus-funded rally be exposed. That said, the ZH basket of shorting the firm's conviction buys, and long the conviction sell, proposed a few days back, is working out quite nicely so far.

From Goldman:

On 12/16/10, the Fed released its debit interchange proposals. On exclusivity, the Fed is considering two alternatives including: (1) requiring at least two unaffiliated networks per debit card (i.e. one signature and an unaffiliated PIN); and (2) requiring at least two unaffiliated networks for signature and two for PIN. Without final clarity, we see this development as an overhang and we remove V from the Americas Conviction List but retain our Buy rating. Since adding V to the Conviction List on July 9, 2010, the shares are down 13.2% vs. +15% for the S&P 500 (-22.8% and +12.1% over 12 months). We make no changes to our estimates or price target.

Current view

With respect to the interchange fee standards, the Fed presented two alternatives: (1) an issuer specific standard with a safe harbor ($0.07/txn) and cap ($0.12/txn); or (2) a $0.12 cap applicable to all relevant issuers. Importantly, both proposals did not include an adjustment for fraud prevention costs, which could add ~$0.02/txn. Although the headlines on the proposed interchange reduction appear ominous, we continue to emphasize that interchange is not a source of revenue for MA and V; therefore its reduction does not change our models. The bigger issue, and where we are most disappointed, is the lack of clarity on the Fed’s final view regarding exclusivity. While we think that the market sell-off on MA and V shares is overdone, we acknowledge that the near-term uncertainty on signature exclusivity keeps the wall of worry on these stocks in place until the final rules are made available in April 2011. Our longer-term view on MA and V is unchanged. We expect both networks to benefit from an improved US backdrop for credit (excluded from Durbin), international growth on the back of an emerging/affluent class and increased traction from emerging payments including prepaid, mobile and remittances. Our 12-month price target of $93 is derived using a weighted average model incorporating our sector relative framework, CY2011E P/E and EV/EBITDA multiples and implies 18X our CY11E EPS of $5.11 (+24% yoy).

Comments

[Ted K]

Gee..... I wonder if the Fed's decision on interchange fees has anything to do with the fact that the little man's (the public at large) opinion of the Federal Reserve will mean a hell of a lot more with Ron Paul head of that committee and gunning for open books??????

Naaaaaaaaaaaaaahh!!!!!!

[TruthInSunshine]

I hereby declare henceforth substituting 'Goldmanized' for 'sodomized.'

I really think this represents a fresh and accurate evolution of the English language in this still fresh new century.

• 'Goldmanized' - verb; to be anally raped; to be anally raped repeatedly; to be anally raped with a coarse object, sometimes repeatedly.

    - I made sure to keep an eye on my cell mate at all times, I took every precaution in the shower, and I also brought a shiv with me to my bunk at night, in the event that I found myself being Goldmanized.              

[knukles]

'Bout fucking time.
Not like these guys are the smartest on the block, have any special insights or even an inside track on what's going on. 

+100
First Place, Inter-mural Irrelevant Recommendations and Special Olympic Investment Games.