With the proliferation of the Internet, a radical shift from cash to digital transactions has enabled digital payment companies like Visa Inc. (V) to thrive. V should benefit as digital transactions continue to grow along with rising consumer spending.
In this piece, I have discussed several reasons why it could be wise to buy the stock now.
Online banking, mobile wallets, and payment apps have made digital payments increasingly convenient. The popularity of e-commerce has also contributed to the growth of digital transactions. Global digital payment revenues are expected to grow at a CAGR of 20.8% to reach $361.30 billion by 2030.
During the second quarter, V’s EPS and revenue exceeded analyst estimates. Its EPS came 5.2% above the consensus estimate, while its revenue beat analyst estimates by 2.5%. The company’s global quarterly payments volume increased 13% year-over-year, excluding Russia and China. Also, its processed transactions during the second quarter grew 12% year-over-year.
In the U.S., quarterly payments volume rose 10%, while its payments volume outside the U.S., excluding Russia and China, increased 17.5% year-over-year. Excluding intra-Europe, the total cross-border volume is up 32%, with cross-border travel volume at 130% in 2019. Visa Direct cross-border P2P transactions, excluding Russia, grew by nearly 50%.
V’s CEO Ryan Mclnerney said, “Visa’s strong fiscal second quarter performance reflects continued focus on our growth levers – consumer payments, new flows, and value-added services. While there is macroeconomic uncertainty, I feel confident in Visa’s ability to manage through changing environments.”
V’s stock has gained 15.7% in price over the past nine months and 6.4% over the past year to close its last trading session at $228.79.
Here’s what could influence V’s performance in the upcoming months:
Robust Financials
For the fiscal second quarter that ended March 31, 2023, V’s net revenues increased 11% year-over-year to $7.99 billion. The company’s non-GAAP net income increased 14.3% over the year-ago quarter to $4.38 billion. In addition, its non-GAAP EPS came in at $2.09, representing a 16.8% increase from the prior-year quarter.
Favorable Analyst Estimates
Analysts expect V’s EPS for fiscal 2023 and 2024 to increase 14.4% and 13.8% year-over-year to $8.58 and $9.77. Its fiscal 2023 and 2024 revenue is expected to increase 11% and 11.1% year-over-year to $32.55 billion and $36.15 billion.
V's EPS and revenue for the quarter ending June 30, 2023, are expected to increase 6.6% and 10.8% year-over-year to $2.11 and $8.06 billion, respectively.
High Profitability
In terms of the trailing-12-month EBIT margin, V’s 66.94% is 222.8% higher than the 20.74% industry average. Its 50.59% trailing-12-month levered FCF margin is 233.7% higher than the 15.16% industry average. Likewise, its 0.37x trailing-12-month asset turnover ratio is 83.6% higher than the industry average of 0.20x.
Solid Historical Growth
V’s EBIT grew at a CAGR of 9% over the past three years. Its net income grew at a CAGR of 8.1% over the past three years. In addition, its EPS grew at a CAGR of 10.4% in the same time frame.
POWR Ratings Show Promise
V has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. V has an A grade for Quality, consistent with its high profitability.
It has a B grade for Stability, in sync with its 0.97 beta. Its favorable analyst estimates justify its B grade for Sentiment.
V is ranked #3 out of 47 stocks in the Consumer Financial Services industry. Click here to access V’s Growth, Value, and Momentum ratings.
Bottom Line
V’s stock is trading above its 50-day and 200-day moving averages of $228.54 and $213.45, respectively, indicating an uptrend. Despite the current macroeconomic headwinds, V reported solid payments volume, earnings, and revenue growth in the first quarter.
Digital payments have grown significantly over the past few years, but there exists tremendous potential for long-term growth in consumer payments. According to PwC Global, the number of cashless transactions is expected to triple by 2030. Moreover, amid high-interest rates, credit card processors like V should benefit.
Given its robust financials, favorable analyst estimates, solid historical growth, and high profitability, it could be wise to buy the stock now.
How Does Visa Inc. (V) Stack Up Against Its Peers?
V has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Consumer Financial Services industry with a B (Buy) rating: Regional Management Corp. (RM), EZCORP, Inc. (EZPW), and Mastercard Incorporated (MA).
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V shares fell $228.79 (-100.00%) in premarket trading Monday. Year-to-date, V has gained 10.55%, versus a 12.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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