John T. Williams from UBS Equity Research is making a potentially major call downgrading both Mastercard (NYSE:MA) and Visa (NYSE:V) to Sell.
- V price target goes to $113 (-$14), MA to $403 (-$54)
V and MA shares sit near all-time highs despite exposure to a weakening global consumer spending backdrop—which makes a slowdown in key metrics inevitable over the next 3-6 months, in UBS view. While both possess expense leverage and remain attractive “safe havens” relative to banks and FinTech names, multiple data points indicate global growth is slowing—clear negatives for the shares.
Three key reasons for the downgrades:
1) Weaker US economic data imply a consumer-led spending slowdown is underway (US is 52% of volumes for V, 38% for MA);
2) Global growth is also slowing—UBS expects a modest near-term slowdown in cross-border revenue for both networks, while FX is a meaningful revenue growth headwind (Europe accounts for 29% of MA’s spending; 48% of V’s volumes are international—ex-Europe).
3) Near-term noise, which includes a variety of issues and catalysts: potential settlement of the “Brooklyn case” (which could be positive or negative), the evolution of US PIN debit into a utility-type business (modest negative), and subtle shifts in the balance of power between networks and issuers/merchants including upward pressure on rebates and incentives (negative).
And here's the most important part of the call:
Few incremental buyers
Since their February industry launch, they have noted a very high comfort level and distinct positive bias among investors for both V and MA shares, given the companies’ strong models, growth and returns profiles, and defensiveness relative to bank stocks. While they understand (and concur with) much of this view, most investors with whom they have spoken seem to love (one or both of) the stocks and own the stocks—but are largely comfortable with their positions and are not inclined to add at current levels. In other words, they sense some complacency—and while the overall consensus view is very positive, there appear to be very few incremental buyers—and a low short interest—at current levels.
Notablecalls: Actionable Call Alert!
Nothing new in the US/Global spending slowdown comments. But do note the positive-bias related comments among institutional investors. I can't believe there is only 2% short interest in both V and MA. True consensus longs.
The UBS comments spill blood in the water - and it's bound to attract sharks. Whenever you see consensus longs like these highlighted as prominently, short-sellers will show up to feast. The investors will be defenseless.
I suspect both MA/V will be down 2-3% today (could be more for V) and more in the coming days and weeks.