Summary
- I previously rated Visa Inc. stock as a hold, but I am now downgrading to a strong sell due to the rejected $30 billion settlement and weakening consumer spending trends.
- A lawsuit rejection by a federal judge in Brooklyn raises concerns about Visa’s legal standing and potential impact on earnings and financial health.
- Regulatory challenges and the macroeconomic environment are both not in Visa’s favor, leading to a potential revenue decline now exceeding my estimated $1.6 billion.
- With this, I think the Visa P/E ratio needs to come down.
Investment Thesis
After previously rating Visa Inc. (NYSE:V) a hold in March, I believe the stock now is a strong sell. However, with recent developments, my view of the stock’s future has turned negative.
A federal court’s rejection of the lawsuit settlement by the judge represents a substantial setback for Visa. This $30 billion antitrust settlement would’ve forced Visa and Mastercard to roll back on their swipe fees for 3 years by 4 basis points, along with limiting their fees for the next 5 years to 2023 levels. This settlement was rejected by a federal judge in Brooklyn, New York. Judge Margo Brodie indicated that the settlement does not appear to provide sufficient relief, signaling the need for a more generous compensation for the affected merchants. This not only casts a shadow on the company’s legal standing but also leaves me weary as it suggests that the eventual settlement could be much higher than initially anticipated. This settlement is already huge, meaning that if it expands, it could severely impact Visa’s earnings and overall financial health.
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