Excellent News From Well Managed Firms - 4 / 30 / 29

From the front page of Investor's Business Daily, "Visa EPS Climbs 40% and Tops Views Raising Outlook for Operating Margins". But the real story from this earnings report actually appeared in this site's 4/27/2009 posting.

Visa cut quarterly operating costs by 50 million dollars while revenues remained stable. This resulted in better than expected income results on a per share basis.

When the economy and the equity markets go into a tailspin, the best public companies, Visa among them, use these times to trim the fat, cut off the dead wood, push back vendors, and emerge more profitable, leaner and more efficient. And for the value investor, these times are really really good because the cost of assets and future earnings is half what it was 12 months ago. (Value Building 4 / 27 / 2009).

Visa is an excellent example for us to analyze from a value perspective for a number of reasons. Visa's executive management really does squeeze the most equity value out of its operations that it can. Here is a company that exists and thrives almost entirely on consumer credit. And when the general equity market trends turned against Visa, and their stock dropped from year ago heights of 85.00 per share to a January 2009 low of 47.00, management steadily cut is operating costs, squeezed its vendors, wrote down its bad loans at times when no company had any influence in their share price, took advantage of a very favorable credit market (FOR COMPANIES WITH GREAT CREDIT RATINGS) and now has emerged leaner and more profitable. Of course to our readers it comes as so surprise that the illustrious Wall Street analysts missed another one. When everyone, businesses and consumers alike needed to rely on credit, Visa was in the financial position to offer it, at a higher price which is why their revenues remained stable.

The problem with Visa is that it is too expensive at its current 54.0 P/E Ratio for any self respecting value investor to approach it. As great a company as this is, are investors really willing to pay a share price equal to 54 years of earnings results to own it? Leave it to the speculators I think, but kudos to management for maintaining such a P / E ratio in this credit market environment.

Its main competitor, American Express sits on a relative value advantage with an 11.0 P/E Ratio. Hmmmm. Get any ideas readers on another company we may need to add to the list? American Express has an even more conservative approach to consumer credit, has much lower and selective market share and is likely trading below its fair value currently. Which means unless there is a systemic issue the company is not reporting, American Express, currently priced at 25.00 should approach $37.00 within 12 months. Let's begin watching it.

DELL - $11.25, Buy in price $10.00, Stop Loss $9.56
GE - $12.22, Buy in price $10.60, Stop Loss $9.70
AXP - $24.95, Buy in price $24.95, Stop Loss $19.96

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Brad van Siclen