The digital revolution has completely changed the way people like us pay, receive, borrow, or save money. The pandemic provided the impetus for digital payments. According to PwC Global, the number of cashless transactions is expected to triple by 2030. Thus, if you want to capitalize on this trend, Visa Inc. (V) could be the best to help you with that.
Let me explain why…
Payments technology giant 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.
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, spending a total of $3.10 billion. During the quarter, the company returned $4 billion in capital to shareholders through dividends and share repurchases.
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.
V pays a $1.80 per share dividend annually, yielding 0.82% 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 8.4% in price over the past six months and 5.9% year-to-date to close the last trading session at $219.94.
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 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. 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 20.27x is 60.7% higher than the 12.62x industry average. Its 14.20x forward EV/Sales is 403.4% higher than the 2.82x industry average. Likewise, its forward P/B of 11.88x is 210.2% higher than the 3.83x industry average.
High Profitability
In terms of the trailing-12-month gross profit margin, V’s 97.58% is 98.4% higher than the 49.19% industry average. Likewise, its 70.09% trailing-12-month EBITDA margin is 518.5% higher than the industry average of 11.33%. Furthermore, the stock’s 67.14% trailing-12-month EBIT margin is 977.7% higher than the industry average of 6.23%.
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 #5 out of 49 stocks in the Consumer Financial Services industry. Click here to access V’s Growth, Value, and Momentum ratings.
Bottom Line
The Fed is expected to keep raising interest rates, with inflation remaining elevated. Rising interest rates are beneficial for credit card processors like V. In addition, V stands to benefit from the easing of travel restrictions. The long-term growth of V is expected to be driven by the transition from cash to digital transactions and the rise in consumer spending.
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 $217.87 per share on Wednesday morning, down $2.07 (-0.94%). Year-to-date, V has gained 5.07%, versus a 3.53% 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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