Payments technology company Visa Inc. (V) reported solid operational performance in the first quarter of fiscal 2023. Despite the uncertain macroeconomic environment, shares of V have gained 12.7% over the past six months to close the last trading session at $223.77.
Throughout this piece, I will discuss various reasons why I am extremely bullish on this stock.
Finance giant V’s revenues grew 12% year-over-year in the fiscal 2023 first quarter, beating the consensus estimate by 3.1%. The revenue growth was primarily due to stable payments volume and processed transaction growth amid a continued cross-border travel recovery. Also, the company had a 21% growth in non-GAAP EPS, surpassing analysts’ estimates by 8.4%.
V’s payments volume in the first quarter increased 7% year-over-year on a constant-dollar basis, while total cross-border volume grew 22% from the prior-year period. The company’s processed transactions rose 10% year-over-year.
During the quarter, the company returned $4 billion in capital to shareholders through dividends and share repurchases. V pays a $1.80 per share dividend annually, yielding 0.80% on the current share price. Its four-year dividend yield is 0.62%. The company’s dividend payouts have grown at a CAGR of 14.5% over the past three years and 17.6% over the past five years.
Executive Chairman Alfred F. Kelly, Jr. said, “I continue to see a bright future for Visa and believe that we have the right strategy to invest in and capitalize on the opportunities ahead across consumer payments, new flows, and value-added services.”
According to a report by Grand View Research, the global digital payments market is expected to expand at a 20.8% CAGR from 2023 to 2030. The pandemic positively impacted the market by significantly increasing online sales and the adoption of digital transactions worldwide. V could be an ideal long-term investment to capitalize on this growing trend.
Here is what could shape V’s performance in the near term:
Solid Financials
For the fiscal 2023 first quarter ended December 31, 2022, V’s net revenues increased 12% year-over-year to $7.94 billion, driven by growth in payments volume, cross-border volume, and processed transactions. The company’s operating income grew 6.6% year-over-year to $5.09 billion. Its non-GAAP net income and EPS were $4.58 billion and $2.18, up 17% and 21% year-over-year, respectively.
Favorable Analyst Estimates
Analysts expect V’s revenue to increase 10.2% year-over-year to $32.29 billion in the fiscal year ending September 2023. The company’s EPS for the current year is expected to grow 13% year-over-year to $8.47. Moreover, the company has surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Additionally, the consensus revenue and EPS estimate of $35.92 billion and $9.66 for the next fiscal year (ending September 2024) indicate an improvement of 7% and 14% year-over-year, respectively.
High Profitability
In terms of the trailing-12-month gross profit margin, V is currently trading at 97.58%, 98.4% higher than the industry average of 49.19%. Likewise, the stock’s trailing-12-month EBITDA margin of 70.09% is 524.8% higher than the industry average of 11.22%. Also, its trailing-12-month levered FCF margin of 50.02% is 642.9% higher than the industry average of 6.73%.
In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 43.63%, 22.12%, and 17.77% are significantly higher than the industry averages of 4.75%, 3.21%, and 1.54%, respectively.
POWR Ratings Show Promise
V has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each 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 compared to its peers. Also, it has a B grade for Sentiment, in sync with its optimistic analyst estimates.
In addition, the stock’s 24-month beta of 0.96 justifies its B grade for Stability.
V is ranked #6 out of 49 stocks in the Consumer Financial Services industry. Click here to access V’s additional POWR ratings for Growth, Value, and Momentum.
View all the top stocks in the Consumer Financial Services industry here.
Bottom Line
Digital payments company V’s revenue grew at a CAGR of 8.7% over the past three years. Its EBITDA and net income increased at CAGRs of 8.8% and 7%, respectively, over the same period, while its EPS grew at a 9.3% CAGR. Furthermore, the growing transition from cash to digital payments positions the company for solid long-term growth.
The stock is trading above its 50-day and 200-day moving averages of $220.81 and $207.81, respectively, indicating an uptrend. Given its robust financials, favorable analyst estimates, and high profitability, it could be wise to buy this high-quality stock for the long term.
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: Mastercard Incorporated (MA), OneMain Holdings, Inc. (OMF), and FirstCash, Inc. (FCFS).
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V shares were trading at $226.74 per share on Monday morning, up $2.97 (+1.33%). Year-to-date, V has gained 9.35%, versus a 6.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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