What's Next for Visa Stock After DOJ Lawsuit?
Visa stock continues to fall after the Justice Department accused the payments giant of monopolizing the debit card market. Here's what investors need to know.
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Visa (V) stock is lower Wednesday, extending Tuesday's 5.4% decline, after the Department of Justice (DOJ) said it is suing the payments processing giant for "exclusionary and anticompetitive conduct."
The DOJ's complaint accuses Visa of having a monopoly over the debit card market and claims it uses its dominance to prevent competition. By preventing competition, the Justice Department says that the company is able to charge more for processing transactions than it would in a competitive market.
"We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market," said Attorney General Merrick B. Garland in a statement. "Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service. As a result, Visa's unlawful conduct affects not just the price of one thing – but the price of nearly everything."
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More than 60% of debit transactions in the U.S. run on Visa's debit network, the DOJ said, which it charges more than $7 billion in fees to process. It added that the credit card company prevents competition by imposing exclusionary agreements on merchants and banks and penalizes them if they route transactions through a different debit network or payment system.
"Anticompetitive conduct by corporations like Visa leaves the American people and our entire economy worse off," said Principal Deputy Associate Attorney General Benjamin C. Mizer in a statement.
The DOJ is asking that the court to stop Visa from several anticompetitive measures detailed in the lawsuit, including bundling credit services and imposing pricing or incentive structures.
Visa responded by calling the Justice Department's lawsuit "meritless," according to CNBC.
"Anyone who has bought something online, or checked out at a store, knows there is an ever-expanding universe of companies offering new ways to pay for goods and services," said Visa General Counsel Julie Rottenberg in a statement. "Today's lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving."
Is Visa stock a buy, sell or hold?
Visa is up roughly 5% for the year to date on a total return basis (price change plus dividend), yet Wall Street remains bullish on the Dow Jones stock.
According to S&P Global Market Intelligence, the average analyst target price for V stock is $305.84, representing implied upside of more than 13% to where it's trading as of this writing. Additionally, the consensus recommendation is Buy.
Financial services firm Baird is one of the more bullish outfits on the blue chip stock with an Outperform rating (equivalent to a Buy) and a $320 price target.
"We like Visa as a steady compounder, but understand investor fear of regulatory scrutiny, the U.S. total addressable market (TAM) becoming penetrated, and pressure on incentives," says Baird analyst David Koning.
Nevertheless, the analyst thinks Visa is attractively valued at current levels and likes the company's "high-quality earnings stream, secular growth, and value-added services growth."
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