Leading payments technology company Visa Inc. (V) reported better-than-expected earnings and revenue in the first quarter. The company’s EPS came 8.4% above analyst estimates, 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.
For the three months ended December 31, 2022, V repurchased 15.60 million shares of class A common stock at an average price of $198.74 for $3.10 billion. The company has returned $4 billion of capital to shareholders through dividends and share repurchases.
V pays a $1.80 per share dividend annually, yielding 0.79% on the current share price. Its four-year dividend yield is 0.62%. Its dividend payouts have grown at a CAGR of 14.5% over the past three years and 17.6% over the past five years. The company will pay a quarterly dividend of $0.45 per share of class A common stock on March 1, 2023.
V’s shares have gained 14.9% in price over the past nine months and 10.2% year-to-date to close the last trading session at $228.92. Wall Street analysts expect the stock to hit $260.81, indicating a potential upside of 13.9%.
Here’s what could influence V’s performance in the upcoming months:
Robust Financials
V’s net revenues increased 12% year-over-year to $7.94 billion for the first quarter ended December 31, 2022. The company’s operating income grew 6.6% year-over-year to $5.09 billion. Its non-GAAP net income and EPS came in at $4.58 billion and $2.18, up 17% and 21% year-over-year, respectively.
Favorable Analyst Estimates
V’s EPS for fiscal 2023 and 2024 is expected to increase 12.8% and 14.2% year-over-year to $8.46 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 $35.91 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.
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.
Stretched Valuation
In terms of forward EV/EBITDA, V’s 21.11x is 58% higher than the 13.36x industry average. Its 14.78x forward EV/Sales is 378.7% higher than the 3.09x industry average. Likewise, its forward P/B of 12.37x is 197.5% higher than the 4.16x industry average.
High Profitability
In terms of the trailing-12-month gross profit margin, V’s 97.58% is 99.4% higher than the 48.94% industry average. Likewise, its 70.09% trailing-12-month EBITDA margin is 521.1% higher than the industry average of 11.28%. Furthermore, the stock’s 67.14% trailing-12-month EBIT margin is significantly higher than the industry average of 5.69%.
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.
Its favorable analyst estimates justify its B grade for Sentiment. Also, its 0.96 beta justifies its B grade for Stability.
V is ranked #4 out of 49 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 $218.35 and $205.93, respectively, indicating an uptrend. V reported solid growth in payments volumes in the first quarter, while the number of processed transactions climbed 10% year-over-year.
The long-term growth of V is expected to be driven by the growing number of cashless transactions. According to PwC Global, the number of cashless transactions is expected to triple by 2030.
Therefore, 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: such as MainStreet Bancshares, Inc. (MNSB), AssetMark Financial Holdings, Inc. (AMK), Atlanticus Holdings Corporation (ATLC).
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V shares were trading at $226.40 per share on Thursday morning, down $2.52 (-1.10%). Year-to-date, V has gained 9.19%, versus a 7.01% 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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