Visa's TICKER-Visa, the credit card issuer that set an IPO pricing record, popped when it debuted Wednesday on the New York Stock Exchange at $59.50, up 35% from its $44-a-share IPO price.
"Visa is a unique IPO in a bad market. It's an island unto itself," says Sal Morreale, who tracks IPOs at Cantor Fitzgerald. "It was the most highly anticipated deal this year and considering the way the market has been, this is a very good open."
Visa (V) shares fell to $59 at about 11:15 a.m. ET. Shares of rival MasterCard (MA) were up about 1.3% midmorning on Visa's strong debut.
Morreale adds that we may have seen Visa hit its high for the day. "There was a lot of enthusiasm in the morning. Plus, it opened on 30 million shares and it's a 400 million-share deal."
The initial public offering made Visa's new owners very, very rich when it priced Tuesday night for a record-breaking $17.9 billion. The San Francisco-based credit card company sold 406 million shares at $44 a share, $2 above its estimated $39-$42 range.
Visa said in a statement that the underwriters have a 30-day option to exercise a green shoe provision, which is an option to buy an additional 40.6 million shares. That would push the value of the deal to about $19.7 billion.
Visa also said it would rake in approximately $17.3 billion in net proceeds, and there's more coming should the additional share option be exercised.
This is welcome news for the underwriters, many of which are cash-strapped Wall Street banks battered by troubled portfolios of mortgage-backed securities and by the credit crunch. JPMorgan Chase (JPM.FIRTUNE 500) and Goldman Sachs (GS. FORTUNE 500) were the lead underwriters, while Bank of America, Citigroup (C, FORTUNE 500), HSBC, UBS, Merrill Lynch, Wachovia, and Wells Fargo also worked on the IPO.
There are high hopes for Visa, despite months of stock and bond market turmoil that has dragged the three major indexes lower and pushed bond yields to their highest levels in years. While no one believes that the markets will rebound because of Visa, analysts believe its success could breathe life into a stagnant IPO market.
"We're in a period when so few IPOs have been done that underwriters are not making money in fees. The success of this deal could slowly rekindle the IPO market," says Scott Sweet, managing director of IPOboutique, a research firm based in Florida.
Since the beginning of the year, 21 IPOs have been cancelled and five have been postponed, according to IPO research firm Renaissance Capital.
Analysts also say that Visa is on solid financial footing and has what it takes to deliver steady earnings growth. Even though a quarter of its revenues come from only five banks that could at any time terminate their relationship with the card issuer, Visa is still the number one brand in credit cards. It commands more market share than MasterCard, American Express (AXP. FORTUNE500) and Discover Financial Services (DFS) combined. It is growing at about 11% a year, and should see 18% growth outside of the United States through 2012.
In short, it is the type of company that should be a dependable long-term investment.
Much of this optimism is due to MasterCard (MA), which went public in May 2006 at $39 a share. The stock nearly quintupled when it hit a peak near $227 last December, and has since fallen to about $210.
"MasterCard's success and the valuation it currently receives bode well for Visa," says David Menlow, director of IPOFinancial.com. "Visa may even have gotten more for their IPO than they might have if they had gone first and MasterCard had gone second."
This is because when MasterCard debuted, few people understood that it only processes transactions and does not hold consumer debt. Now investors understand that the companies are not exposed to cash-poor customers and can even benefit if people are forced to use credit to pay for groceries and gas.
But buyer beware. Visa is priced at about 30 times its trailing price-to-earnings ratio, compared to a P/E of 21 for MasterCard.
MORGAN STANLEY KEEPS MAGIC ALIVE
Morgan Stanley (MS) has avoided the over-looks, just as its brethren Goldman Sachs (GS) and Lehman Brothers (LEH) did Tuesday. Shares of the last of the pure-play investment banks to report (absent Bear Stearns) figure to open some six percentage points higher in Wednesday’s early trading. There might be enough hair on the report to prompt something of a re-think later in the session. And, certainly, the response hasn’t been as ebulliant as that which greeted the numbers out of Lehman. But Morgan managed to beat forecasts by a whopping 42 cents a share, despite a drop in net of 43%. Write-downs totalled about $2.3 billion, but there is no indication of a liquidity problem, which is effectively what the Street cares about these days. It took a $1.2 billion write-down on its mortgage exposure - again, perhaps not the worst-case scenario. Its asset management business got slaughtered by its exposure to real estate. And the M&A advisory business saw a 35% decline in revenue. Return on equity dropped to 20% from 31% in the year-earlier period. Morgan Stanley also named a new risk officer. Think management voted him into the gig when the guy was out of the room?
The good news, though, isn’t going to be enough to spare the broad market from the open. The Dow industrial average, which had a pretty fair day Tuesday on the heels of the latest Fed cut, is going to squander some 100 points of that advance, but that means it will net-out with a 300-point-plus gain for the two days. Not bad for government work.
VISA DEMAND STRONG
Visa went ahead and priced its IPO late Tuesday. Response proved to be even stronger than expected. That pushed what already figured to be the largest initial offering in U.S. history even further into the stratosphere. The debut priced at $44 a share, ahead of the range, which had been $37 to $42 a share. That is going to translate into an $18 billion IPO. You might not think it’s an ideal environment in which to price something so heavily levered to the banking business, but there you go. Keep in mind that the entire IPO market raised $122 million in February, so it’s something that should make the bankers happy. The 13,000 banks that control Visa may be looking at the best-performing asset on their balance sheets these days, so there may not be much of a secondary market for the shares. Anybody looking to get the second trade on Visa shares (the stock will trade under the ticker ”V” on the Big Board) might find themselves paying up for the opportunity. Shares of Mastercard (MA) also figure to open stronger.
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