Investors starting on their investing journey could look to begin with payments giant Visa Inc. (V). With a market capitalization of $465.53 billion, V is a giant in the field of digital payments.
Let me explain why V is the stock every beginner should buy.
The world is moving towards going completely cashless. Governments and enterprises are encouraging the adoption of digital payments. According to PwC Global, the number of cashless transactions is expected to triple by 2030.
V reported better-than-expected earnings and revenue in the first quarter. The company’s EPS was 8.4% above analysts’ estimate, and its revenue beat the consensus estimate by 3.1%.
V’s payments volume in the first quarter rose 7% year-over-year on a constant-dollar basis, while total cross-border volume increased 22% year-over-year. Its processed transactions climbed 10% over the prior-year period.
Executive Chairman Alfred F. Kelly, Jr. said, “In our fiscal first quarter of 2023, Visa grew net revenues 12% year-over-year as we saw stable payments volume and processed transaction growth and a continued cross-border travel recovery. We had 8% growth in GAAP EPS, 21% growth in non-GAAP EPS, and returned $4 billion to shareholders.”
“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,” he added.
In addition, the recent bank failures did not affect payments through V. V’s CFO Vasant Prabhu said, “Things have been completely normal. Debit and credit credentials have been usable without any disruptions whatsoever. They’re settling every night. So, really, no impact whatsoever.”
Over the last three years, V’s dividend payouts have grown at a 14.5% CAGR. Its four-year average dividend yield is 0.62%, and its forward annual dividend of $1.80 per share translates to a 0.81% yield. It paid a quarterly dividend of $0.45 per share on March 1, 2023.
The company’s shares have gained 18.7% over the past six months and 6.8% year-to-date to close the last trading session at $221.95. Wall Street analysts expect the stock to hit $259.85 in the near term, indicating a potential upside of 17.1%.
Here are some factors that could influence V’s performance in the upcoming months:
Robust Financials
V’s net revenues increased 12.4% year-over-year to $7.94 billion for the fiscal first quarter that ended December 31, 2022. Its non-GAAP net income rose 17.4% year-over-year to $4.58 billion. The company’s non-GAAP EPS increased 20.4% from the year-ago value to $2.18.
Strong Historical Growth
V’s revenue grew at a CAGR of 8.7% over the past three years. Its EBIT grew at a CAGR of 8.8% over the past three years. In addition, its EPS grew at a CAGR of 9.3% in the same time frame.
High Profitability
In terms of the trailing-12-month EBIT margin, V’s 67.14% is 203% higher than the 22.16% industry average. Its 50.02% trailing-12-month levered FCF margin is 176.4% higher than the 18.10% industry average. Likewise, its 22.12% trailing-12-month Return on Total Capital is 341.7% higher than the industry average of 5.01%.
Positive Analyst Estimates
V's EPS and revenue for the quarter ending March 31, 2023, are expected to increase 10.3% and 7.9% year-over-year to $1.98 and $7.76 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
V’s EPS for fiscal 2023 and 2024 is expected to increase by 13% and 14% year-over-year to $8.47 and $9.66, respectively. Its revenue for fiscal 2023 and 2024 is expected to increase 10.2% and 11.2% year-over-year to $32.29 billion and $35.92 billion, respectively.
Promising POWR Ratings
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. Also, it has a B grade for Sentiment, in sync with favorable analyst estimates. Its 0.97 beta justifies its B grade for Stability.
V is ranked #5 out of 46 stocks in the Consumer Financial Services industry. Click here to access V’s Growth, Value, and Momentum ratings.
Bottom Line
Despite the macroeconomic challenges, V reported solid growth in payments volume. With the Fed likely to keep raising interest rates, the company will likely benefit from higher credit card processing fees.
Given its robust financials, favorable analyst estimates, solid historical growth, high profitability, and reliable dividends, it could be the stock to buy for new investors.
How Does Visa Inc. (V) Stack up Against Its Peers?
V has an overall POWR Rating of B. One could also check out its B-rated industry peers: MainStreet Bancshares, Inc. (MNSB), OneMain Holdings, Inc. (OMF), and FirstCash, Inc. (FCFS).
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V shares were trading at $222.47 per share on Wednesday morning, up $0.52 (+0.23%). Year-to-date, V has gained 7.29%, versus a 4.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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