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Visa Inc. Delivers in Saunders’s Last Quarter as CEO; Reiterate Outperform Rating

Visa’s fourth quarter 2012 adjusted EPS rose 21% year‐over‐year, to $1.54, versus our estimate of $1.52 and the Street consensus of $1.50; better‐than‐expected revenue drove the upside to our estimate. Net revenue rose 15%, to $2.73 billion (versus our estimate of $2.66 billion and consensus $2.67 billion), and operating margin compressed 140 basis points year‐over‐year, to 55.8% (versus our 56.6% estimate), as a result of increased investment and higher advertising expense related to the summer Olympics.

Constant‐currency payments volume growth remained solid, with U.S. credit up 9.2% (versus 9.8% in the June quarter), international credit up 10.2% (versus 13% in the June quarter), and international debit up 19.6% (versus 28.5% in the June quarter). U.S. debit fell 5.9% (versus a 9% decline in the June quarter); however, signature volume continues to grow in the midsingle digits. Volume trends in October accelerated moderately relative to the September quarter. Management remains confident that the judge will approve the recent Merchant lawsuit settlement, which was filed with the court on October 19, 2012. Management does not anticipate a material change in strategy following the retirement of its current CEO; incoming CEO Charles Scharf is slated to begin Thursday, November 1.

Similar to MasterCard (MA $460.93; Outperform), management cited an uncertain macro environment yet continues to expect low‐double‐digit revenue growth in fiscal 2013 (versus 13% in fiscal 2012), and management affirmed expectations of high‐teens EPSgrowth in fiscal 2013 with about a 60% operating margin; we believe there could be upside to the margins. Growth should accelerate as the company marks the anniversary Trading Data (FactSet) Shares Outstanding 705 of the impact related to the exclusivity rules of the Durbin amendment. Float (mil.) 810 Average Daily Volume 3,058,943 We are raising our above‐the‐Street EPS estimate slightly for 2013, to $7.28 (from $7.25); our 2014 estimate is unchanged at $8.55 (17% growth). The company recently increased Financial Data (FactSet)

its annual dividend by 50%, to $0.33 per share, and has $2.3 billion authorized for share repurchases (increased by $1.5 billion Wednesday). We reiterate our Outperform rating as our thesis of strong secular growth, high incremental margins, large entry barriers, and unlikely disruption from regulation/disintermediation continues to play out

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