Buying Long Term Call Options In V Stock Appears To Be A Wise Decision
Sep, 17th 04:37
Visa (NYSE:V) has been a stable stock during 2015, although it had to bear the brunt of a global equity sell-off over the last couple of months. During this time, the stock declined by around 9% from its peak near July end.
Despite that, V along with MasterCard (NYSE:MA), its major global competitor, has been able to garner a relatively higher valuation compared to smaller players such as American Express (NYSE:AXP).
Looking at the future earning potential, it seems that V would lag behind MA and AXP. As of now, estimates for 2016 EPS for V, MA and AXP stand at $2.78, $3.83, and $5.76, respectively.
However, in terms of P/BV, V remains undervalued compared to MA. V’s P/BV of 6.4 is less than half of MA’s P/BV of 16.71. Another point to note here is that given the size and profile of V, only an evaluation against MA would constitute an apples-to-apples comparison.
Over the last five quarters, V has ensured a healthy quarter-end cash position of around $2 billion and ploughed back profits to the extent that on average retained earnings comprised 35% of the overall owner’s capital.
It makes sense for V to capture more customers owing to its dominating position, particularly in the credit card market. V has the unique advantage of having the best of both worlds. It has not only the highest number of acceptance points with around 36 million registered merchants but also the largest number of issued cards at around 2.9 billion. MA is the only other provider to come anywhere close to V with 36 million merchants and around 2.1 billion cards.
So considering the overall outlook, buying the long term options in Visa stock could be a good strategy.