Visa driving Dow higher

Over the last three months Visa has offered investors the greatest return in the Dow Jones. 

Wall Street
Source: Bloomberg

Of the 43 institutional analysts who rate Visa, 33 are buys, 10 are holds and none have the company as a sell. At the time of writing the shares are trading at $264, and the 12-month average price target from the analysts is $270.

Part of the reason Visa has such a strong institutional backing is because of its strong market share. In the third quarter customers spent $1882 billion with the company, in comparison with $1157 billion using Mastercard and $258 billion with American Express. This means that Visa has a 55% share of the market, Mastercard 33% and American Express holding just over 7.5%, with the remainder of the market made up by the likes of PayPal and Discover.

We are now well into the most important quarter as far as retailers and, therefore, credit payment companies are concerned. This holiday shopping season in the US is expected to see credit cards account for 38% of consumer spending, up from last year’s 29%. This will be the largest amount since the survey began 12 years ago; this has also coincided with a greater proportion of household income being spent on purchases. Considering the anemic growth that we have seen in average earnings on both sides of the Atlantic, this is not completely surprising.

Visa has been the largest contributor to the Dow’s moves in the last couple of months, as the company accounts for 9.53% of the Dow’s weighting and has had the largest move higher, up 23.5%.

Shares in Visa have been overbought since the end of October, and the current share price is now very close to the average price target from institutional analysts and has an arguably unhealthy divergence away from the 200-day moving average. All of this means that as attractive as the company might be, a correction taking some of the froth off the share price would be needed to entice me into opening a long position. 

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