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UBS downgrades Visa, MasterCard on weak consumer spending

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Mon Jul 9, 2012 6:34pm IST

* Downgrades to "sell" from "neutral"

* Says lower consumer spending will affect both companies

* Cuts Visa price target to $113 from $127

* Cuts MasterCard price target to $403 from $457

July 9 (Reuters) - UBS Investment Research downgraded payment processors Visa Inc (V.N) and MasterCard Inc (MA.N) to "sell" from "neutral," citing slower consumer spending in the United States and sluggish global economic growth.

"We believe both companies' exposure to a slowing consumer spending backdrop makes a slowdown in key metrics simply unavoidable," UBS analyst John Williams wrote in a note and cut his price target on both the stocks.

Williams is rated five stars for the accuracy of his earnings estimates on Mastercard according to Thomson Reuters StarMine data. StarMine awards five stars to the top 10 percent of analysts.

US consumer confidence fell for the fourth-straight month in June to its lowest level since January. The weak economy and still high unemployment have led consumers to put off purchases and put away their credit cards, hurting payment companies that earn fees on every card swiped.

Given both the companies' strong growth models and return profiles, there appear to be very few incremental buyers at current levels, UBS said.

Shares of Visa Inc were down 2.21 percent before the bell, after closing at $125.28 on Friday on the New York Stock Exchange.

Shares of MasterCard were down 2 percent before the bell, after closing at $441.63 on Friday on the New York Stock Exchange.

(Reporting by Avik Das in Bangalore; Editing by Supriya Kurane)

((avik.das@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: avik.das.thomsonreuters.com@reuters.net)) Keywords: VISAMASTERCARD RESEARCH/UBS

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