NEW YORK (AP) -- Shares of Visa appeared to be headed for an all-time high Thursday after a strong first quarter and emerging evidence that new rules governing debit cards have not had as big of an impact as was feared.
The San Francisco company also released an outlook that was more robust than expected and shares in premarket trading rose 4 percent.
"We believe management's guidance raise is a reflection of a moderately improving view on the overall impact from the debit legislation," said Nomura analyst Bill Carcache in a note to clients. Carcache, who already has a "buy" rating on the stock, raised his price target to $140 from $119.
Visa CEO Joseph Saunders during a conference call said that the impact of regulations on debit cards have so far been "modestly better" than he expected.
There are new limits as to how much retailers must pay to have debit card purchases processed. In April, merchants will also have a choice about which processing network handles their transactions.
Late Wednesday, Visa posted net income for
The San Francisco-based company said its net income during the most recent quarter rose 16 percent to $1.03 billion, or $1.49 per share. Revenue for the quarter rose 14 percent to $2.55 billion. Both figures topped Wall Street expectations.
Merchant choice played a part in the slowdown in debit card growth for Visa during the quarter, Saunders said, because one major bank decided to remove Visa's Interlink network from its cards. But other banks are in talks to add the network to cards that don't say "Visa" on the front. He also touted several other moves the company is making to entice store operators to choose processing on Visa's network.
Also a factor in the debit slowdown was that most banks have eliminated their debit card rewards programs because they are taking in less money as a result of the fee limits.
Another positive was comments Saunders made about an ongoing lawsuit brought by merchants on similar fees charged for credit card processing. Saunders, like his counterpart Ajay Banga at MasterCard Inc. last week, said Visa will not accept a deal that calls for significant long term cuts in those fees, known as "interchange." He also said the company sees progress in mediation on the case.
"While uncertainties remain, consistent with managements' commentary, we continue to believe a radical outcome is not logical and we would be surprised if the 12 banks involved, MasterCard and Visa would agree to anything other than a temporary reduction of interchange," William Blair analyst Robert Napoli said. "Furthermore, we do not anticipate that a reduced interchange rate would be determined by the court." He noted that there are more factors in deciding such fees when it comes to credit — including the risk banks take when lending customers money — than with debit. Napoli kept an "Outperform" rating on the stock.
Visa raised its guidance for the rest of the fiscal year, and now expects annual revenue growth in the low double digits and earnings per share growth in the high teens.
A number of analysts raised their forecasts on Visa for the year. Wall Street now expects the company to report a per share profit of $5.94 for the year, up from $5.87, with estimates ranging from $5.72 to $6.10. Revenue is now seen coming in at $10.15 billion, up from $10.05 billion.
The new environment for companies such as Visa, however, continue to present challenges. Gil Lauria of Wedbush Securities said he thinks the debit card regulations will create a worsening drag on revenue growth in the U.S. He kept a "Neutral" rating, though he too raised his price target, to $90 from $83.
Visa Inc. rose $4.45 to $112.80 before the opening bell, which could mean another all-time high. Shares hit a new high of $108.35 on Wednesday, nearly 40 percent higher than the trading price last year at this time.
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