Visa Stock Slips 4.15% Amid DOJ Antitrust Suit

Sep 24

Visa Inc. (NYSE: V), the world's largest payment processing company, has come under pressure as reports surface that the U.S. Department of Justice (DOJ) is preparing to file an antitrust lawsuit against the company. The allegations center around monopolistic practices in the U.S. debit card market, accusing Visa of using its dominant position to hinder competitors. In the wake of this news, Visa's shares fell 3.7% early Tuesday, marking a significant drop for the payment processor. Let’s dive into the key fundamental and technical aspects driving Visa's recent performance and future outlook.

Antitrust Concerns Cloud the Horizon
The DOJ's anticipated lawsuit is based on accusations that Visa (NYSE: V) has been using anti-competitive tactics such as exclusive agreements and penalties for customers using other payment processors. These tactics, according to the DOJ, have allowed Visa to maintain its dominant position in the U.S. debit card market, preventing competitors from gaining market share. This isn't the first time Visa has come under regulatory scrutiny; the DOJ previously blocked a $5.3 billion merger between Visa and fintech company Plaid in 2021, citing antitrust concerns.

Visa (NYSE: V) has also faced heightened scrutiny alongside its rival, Mastercard (MA), as both companies are often accused of operating as a duopoly in the payments industry. Recent reports suggest that Visa's volume-based discounts for merchants are a point of contention, with regulators arguing that these discounts create barriers for new entrants to compete effectively, keeping prices artificially high.

Despite these challenges, some analysts believe that the long-term financial impact on Visa's revenue may be limited. KBW brokerage estimates that Visa's U.S. debit business accounts for around 10% of the company’s total revenue. While the lawsuit could drag on for years, analysts are not expecting a significant blow to Visa’s earnings, although there may be volatility in the stock price during the legal proceedings.

Technical Analysis: A Slippery Slope for Visa's Stock
Visa's stock has been in a rising trend pattern for the better part of 2024, experiencing regular highs and lows as it steadily ascended. However, with the DOJ lawsuit looming, Visa’s stock experienced a sharp decline of over 4% during Tuesday’s trading, dipping to $278.04. This drop represents a crucial turning point as the stock nears a key support zone.

From a technical standpoint, Visa’s current price action shows the stock regressing towards the $255 pivot level, which previously acted as resistance in December 2023. This support level is critical, as breaking below it could lead to further declines. However, if the stock holds above this level, we could see a rebound in the coming weeks, especially if the market shifts focus away from the lawsuit and back to Visa's strong fundamentals.

The stock's Relative Strength Index (RSI) also provides insight into its near-term trajectory. Currently hovering at 46, the RSI suggests that Visa (NYSE: V) is approaching oversold territory. While not yet indicating a reversal, this level is crucial to watch, as a dip below 40 could signal further downside momentum. Conversely, an RSI rebound could spark a short-term rally, particularly if Visa’s fundamentals stabilize.

What Lies Ahead for Visa?
While Visa (NYSE: V) has encountered regulatory hurdles in the past, the payments giant continues to be a powerhouse in the global payments industry. Its ability to navigate legal challenges, coupled with its dominant market position, ensures that Visa (NYSE: V) remains a significant player in the long term. Additionally, Visa’s aggressive stock buyback program and global expansion into digital payments and fintech partnerships should cushion the blow from the ongoing antitrust investigation.

However, the uncertainty surrounding the DOJ lawsuit may weigh on the stock in the short to medium term, as investors brace for potential headlines and prolonged legal battles. Visa's earnings are not expected to take a substantial hit from its U.S. debit operations, but the negative sentiment from the lawsuit could cause the stock to fluctuate in the months ahead.

Conclusion
Visa’s stock is at a critical juncture, facing headwinds. The DOJ’s antitrust lawsuit has sparked concern among investors, but the long-term fundamentals of the company remain intact. From a technical perspective, all eyes will be on the $255 support zone, with the potential for a short-term rebound if Visa can hold above this level. Nonetheless, the legal proceedings are likely to introduce volatility, making Visa (NYSE: V) a stock to watch closely in the coming weeks.