Visa (V) will report their fiscal Q3 results tonight after the close.The options market is implying about a $3 move in either direction tomorrow, or about 3.3%, which is rich to its 2.35% average one-day post-earnings move over the last 4 quarters, and a tad below the 10-year average of 3.4%.
Shares of Visa are up a whopping 26.5% ytd, well outpacing the S&P 500’s (SPX) 10.5% ytd gains and peers American Express’s (AXP) 14.5% and Mastercard’s (MA) 24.55% ytd gains.
There are lots of ways you can draw the lines on this one year chart, and to be brutally honest, it’s hard to draw any conclusions that are less than constructive, aside for the potential for the stock to easily give back a few bucks that it just gained as the 5% bounce over the last two weeks might incorporate any good news to be released this evening. That said, this stock is obviously going to trade at the nice round number of $100 before it’s all said and done, so any consolidation after the print likely is just a staging point for a new high in the not so distant future.
V trades at nearly 30x expected f2017 eps growth of 18% on 19% sales growth, a slight premium to MA, but when you compare the differential in expected eps and sales growth rates (consensus is looking for 14% and 12% respectively for MA), Visa looks fairly attractive on a PE/G basis.
Sentiment is off the hook with 33 buys, 5 holds and no sells among Wall Street analysts.
So What’s the Trade? If you are inclined to play for higher highs but agree that the stock might consolidate recent gains immediately after earnings tonight, then you might consider financing longer dated upside calls by selling out of the money weeklies via a call calendar:
V (98.50) Buy the July/Sept 100 call calendar for 1.25
- Sell 1 July 100 call at .80
- Buy 1 Sept 100 call for 2.05
Breakeven/Rationale: This trade does best with the stock pinned to 100 on Friday. It is aggressive in its near term call sale, so a big move through 100 and it actually risks losing money. The most it can lose is 1.25, and on a move lower it’s unlikely to lose all as the September calls will likely have value. If the stock is flat or slightly higher the Sept calls can then be further spread for more upside in the coming months. For those who feel the 100 sale in July is too tight the proper position may be to sell the July 202 calls at .30, making the entire trade 1.75, selling outside the implied move, and not having any risk if the stock rips higher.