Full Disclosure Finance

By Andrew

The Dow was down nearly 300 points today lead by commodities with Gold making its biggest drop since June of 2006 and Crude Oil down nearly 5%. Yet Wall Street still managed to pull off the Largest IPO in US history. Late Tuesday Visa (V) priced the 406 million shares of their Initial Public Offering at $44 per share, raising $17.9 billion in the process. This morning the stock made its market debut at $69 before trading a whopping 177 million shares on the day. The stock cooled off slightly as the day went on but still closed up an impressive 28% at $56.50. Great news for the lucky few who were able to get in on the IPO, but for the majority average Joe investor how do you play this. Well, you could have bought in this morning and then lost 18% on your position…probably not the best strategy. Or you can sit back on the sidelines for a while until you can evaluate this company in more depth and figure out what direction the market is going to take this stock. Everyone wanted a piece of this IPO today hoping that they were getting a piece of the next MasterCard (MA), which is up over 350% since its IPO in May 2006. There was no way that it was going to be able to hold up the highs from this morning trading 177 million shares, especially in the tape we saw today. If you want to play Visa, wait for the stock to come in a bit before you start to build a position. And buy in small blocks so you can lower your cost basis if the market gives you the opportunity. At this point there isn’t much data on the stock in terms of revenue, income, cash flow, or prospective top and bottom line growth. As with any stock you should do your homework and evaluate the fundamentals before making a final decision.

Visa makes money through transaction fees which are cashed in every time a cardholder makes a purchase. And with more and more people paying for non-discretionary staples such as gas, groceries and household bills with their credit cards, Visa has been able reap the benefits. Throw in the steady growth in online shopping, which almost always requires a card, and you’ve got the makings of a winning stock. Unlike the lenders that issue the cards, Visa is well insulated from credit problems because they don’t carry any consumer debt on their books. Visa posted revenue of $5.2 billion last year as it handled more than more than 44 billion transactions (far ahead of rival MasterCard). For the Q1 2008 Visa grew earnings by 70% compared to the previous year and management anticipates year-over-year earnings growth of at least 20 percent for the next two years. I’ll be interested to see what valuation the market is going to give this stock once more data is made public. I’m guessing the P/E ratio will be fairly steep due to the hype surrounding the IPO and this business model in general.

As a side note, this IPO is also extremely bullish for the investment banks that brought Visa public. The team, lead by JP Morgan (JPM) and Goldman Sachs & Co. (GS), is expected to collect more than $500 million in fees from the IPO. JP Morgan is a double winner as Visa biggest customer and shareholder. Look for both of these investment firms to generate huge payoffs from this massive deal.

Disclosure: None