Visa Inc (V), Mastercard Inc (MA): Tuesday’s Top Upgrades (and Downgrades)

Page 1 of 2

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature a pair of price target hikes for plastic purveyors Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). But the news isn’t all good, so before we address those two, let’s take a look at why one analyst thinks that…

Ulta Salon is falling out of fashion
Tuesday began on a down note for shareholders of Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA). Megabanker Goldman Sachs cut its rating on the stock from “buy” to “neutral,” and knocked $5 off its price target to boot.

Why? Well, according to Goldman (and as related by StreetInsider.com), the sale of cosmetics over the Internet “has much potential given favorable characteristics for logistics and
replenishment, and given its dominance by brands.” Goldman sees this as a mark in Ulta’s favor. However, the banker also worries that Ulta will need to spend more on improving its e-commerce abilities if it’s to take full advantage of its opportunities — and that costs money.

Problem is, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) is already spending a lot of money. Capital spending ate up nearly $189 million of the $239 million in cash flow that Ulta brought in last year, leaving the company with free cash flow of only $50 million or so. That’s far less than the $172 million the company claimed as GAAP net income for the year. And that means that the stock’s already high P/E ratio of 33 should more realistically be looked at as a price-to-free cash flow ratio north of 110.

Even growing at 21.5%, as it’s projected to do, that’s a hard price to swallow. If you ask me, Goldman is right to downgrade — and the only question is why the analyst didn’t go even further and mark Ulta down to “sell.”

Credit card companies: Don’t leave home without them?
Visa Inc (NYSE:V)In happier news, two credit card companies received hikes in price target from analysts at Oppenheimer this morning. Both Visa Inc (NYSE:V) (now projected to hit $200 a share within a year) and Mastercard Inc (NYSE:MA) ($625), are already buy-rated by Oppenheimer. The only thing that’s changing, therefore, is that the analyst likes them both even more today than it did before.

But I still don’t.

Don’t get me wrong — as businesses go, it’s hard to think of better companies than Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). They basically own the credit card space, and act as “tollbooths” to more and more consumer purchases with each passing day. Analysts have Visa pegged to grow its earnings north of 18% per year over the next five years, and expectations for MasterCard are nearly as strong. The problem, however, is valuation.

Priced at 50 times earnings, and paying a dividend yield less than 1%, Visa Inc (NYSE:V) looks vastly overpriced even for its robust prospects of profits growth. Mastercard Inc (NYSE:MA), growing slightly slower, costs much less — but even at 25 times earnings, is no great bargain.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!