Visa Inc. (V) is a leading payments technology company that facilitates digital payments among consumers, merchants, financial institutions, strategic partners, businesses, and government entities. Additionally, it provides card products, platforms, and value-added services. The company offers products and services under the Visa, Visa Electron, Interlink, and VPAY brands.
Warren Buffett’s Berkshire Hathaway (BRK.B) owns nearly 8.3 million shares of V for a market value of $1.8 billion. The stock represents about 0.5% of Berkshire Hathaway’s portfolio.
Last month, V posted better-than-expected earnings for its fiscal third quarter. The company has benefited from a significant global shift from cash to digital payments. Moreover, as consumers return to their pre-pandemic traveling habits, the company’s cross-border volume improved 40% year-over-year.
Al Kelly, Chairman and CEO of Visa, said, “Consumers are back on the road, visiting various corners of the world, resulting in cross-border travel volume surpassing 2019 levels for the first time since the pandemic began in early 2020.”
V pays $1.50 as dividends annually, yielding 0.71% on the current price. The company’s dividends have increased at a CAGR of 14.6% over the past three years and 17.9% over the past five years. The company’s dividend has grown for 13 consecutive years.
In May, V partnered with Fundbox, an embedded working capital platform for small businesses, to strengthen the latter’s platform with new digital payment capabilities. Under this collaboration, Fundbox Flex Visa Debit Card will be launched, issued by Pathward, N.A.
In addition, the companies will work together in the coming months to introduce a range of new payment products, including a Buy Now, Pay Later (BNPL) solution, and a push-to-card transfer option for instant fund disbursement through Visa Direct. This partnership is expected to extend the company's customer reach and boost its revenues.
V’s shares have gained 4% over the past month to close the last trading session at $211.73.
Here is what could influence V’s performance in the upcoming months:
Robust Financials
V's net revenues increased 19% year-over-year to $7.30 billion in the fiscal third quarter ended June 30, 2022. Its operating income grew 2.1% from the year-ago value to $4.15 billion. The company’s non-GAAP net income and non-GAAP earnings per share came in at $4.20 billion and $1.98, up 29% and 33% year-over-year, respectively.
Favorable Analyst Estimates
Analysts expect V's revenue for the fiscal 2022 fourth quarter (ending September 2022) to come in at $7.56 billion, representing a rise of 15.3% from the same period in 2021. The current quarter's $1.86 consensus EPS estimate indicates a 14.8% year-over-year increase. It’s no surprise that the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
In addition, V’s revenue and EPS for the fiscal year 2022 are expected to rise 20.6% and 25.7% year-over-year, respectively. Also, analysts expect the company’s revenue and EPS for the next year to grow 11.6% and 13.3% year-over-year, respectively.
High Profitability
V’s trailing-12-month gross profit margin of 97.33% is 92.1% higher than the 50.66% industry average. Its trailing-12-month EBITDA margin of 70.47% is 438.2% higher than the 13.1% industry average. Likewise, the stock’s trailing-12-month net income of 51.99% is 1,113.4% higher than the industry average of 4.28%.
Furthermore, V’s trailing-12-month ROCE, ROTC, and ROTA of 42.43%, 20.06%, and 17.10% are higher than the industry averages of 7.28%, 4.14%, and 2.84%, respectively.
Consensus Rating and Price Target Indicate Upside
Of the 22 Wall Street analysts that rated V, 20 rated it Buy, while two rated it Hold. The 12-month median price target of $257.28 indicates a 21.3% potential upside. The price targets range from a low of $204.00 to a high of $296.00.
POWR Ratings Show Promise
V's overall B rating equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
V has a grade B for Sentiment, consistent with its revenue and earnings growth estimates. In addition, the stock has a grade of B for Quality, in sync with its higher-than-industry profitability multiples.
V is ranked #9 out of 48 stocks in the Consumer Financial Services industry.
Beyond what I have stated above, we have also given V grades for Growth, Value, Stability, and Momentum. Get access to all the V ratings here.
Bottom Line
V reported impressive fiscal third-quarter results amid strong travel spending and increased worldwide transition toward a cashless economy. Analysts are bullish about the company’s growth prospects.
Given the company’s robust financials, higher-than-industry profitability, attractive dividend track record, and solid revenue and earnings growth estimates, we think it could be wise to invest in the stock now.
How Does Visa Inc. (V) Stack Up Against its Peers?
V has an overall POWR Rating of B. One could also check out these other stocks within the Consumer Financial Services industry with a B (Buy) rating: Ezcorp Inc. CI A (EZPW), Atlanticus Holdings Corporation (ATLC), and OneMain Holdings, Inc. (OMF).
V shares were trading at $211.00 per share on Thursday morning, down $1.10 (-0.52%). Year-to-date, V has declined -2.29%, versus a -10.46% 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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