DOJ set to sue Visa – one analyst shifts favored stock, another says buy
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Citi analyst Andrew Schmidt shifted his preferred card network stock to Mastercard (MA) from Visa (NYSE:V) after a media report that the U.S. Department of Justice is poised to sue Visa (V) for alleged anticompetitive practices in the U.S. debit market. He still has a Buy rating on the stock.
However, Wells Fargo Analyst Donald Fandetti, who rates Visa Overweight, noted that regulatory events, such as these, have historically been good buying opportunities for network stocks.
Visa (V) stock fell 3.9% in early Tuesday trading.
“The DOJ investigation has been ongoing since 2021, so this development is not a complete surprise,” Citi’s Schmidt said in a note to clients. While Visa (V) may have a “reasonable argument” for increasing debit market competitiveness due to Mastercard (MA) debit card portfolio wins, Reg. II clarifications that support e-comm routing over alternative networks, and the increase in account-to-account payments. Still, he sees “an incremental regulatory overhang” for Visa (V) and “developments may stretch out with variable outcomes.”
Wells Fargo’s Fandetti said in a note, “We believe the DOJ debit review will play out over a long period of time and often these situations get resolved with manageable mitigation.” On balance, he suggests buying the stock on any weakness around the event.
Still, the analyst considers that the company’s revenue growth guidance for its fiscal 2025 will be important, in addition to guidance at Mastercard’s (MA) investor day on Nov. 13.
“Lastly, we believe the reported DOJ suit plays into Capital One’s (COF) view of the Discover (DFS) deal adding competition to payments,” Fandetti said.
Visa (V) and Mastercard (MA) hold a whopping 95%+ of the U.S. signature debit market, he pointed out. Debit comprises ~51% of Visa’s total U.S. purchase volume, he added.
Unlike the bullish ratings held by Schmidt and Fandetti, the SA Quant system has a Hold rating on Visa (V).
In the payment sector, the Quant system rates Affirm Holdings (AFRM), PayPal Holdings (PYPL), and Toast (TOST) the highest.