Visa deserves some credit

Recent Price $283
Dividend $2.08
Yield 0.7%
P/E Ratio 31
Shares (millions) 2,070.8
Long-Term Debt as % of Capital 34%
52-Week Price Range $285.95 - $208.76

 

Visa ($283; V) shares rose 25% last year and have pushed 5% higher in the opening weeks of 2024. The stock’s strength partly underscores the resilience of the U.S. economy, which grew 3.3% in the December quarter and 2.5% for the year, according to the Commerce Department. Consumers are driving that growth; U.S. retail sales climbed 5.6% in December from the same month last year, topping expectations.

As a processor of credit card and debit cards, Visa’s business model resembles a tollbooth, where it charges a tiny fee for billions of financial transactions every quarter, while avoiding the credit risks shouldered by lenders. Visa is rated Buy.

Dissecting December quarter

For the December quarter, Visa’s per-share profits climbed 11% to $2.41 per share excluding special items, exceeding the consensus estimate by $0.07. Net revenue advanced 9% to $8.63 billion, narrowly ahead of the consensus of $8.56 billion.

Cash provided by operations declined 13%, while free cash flow dropped 23%; both metrics rose more than 5% for the 12 months ended December. Visa’s operating profit margin expanded for the third straight quarter.

Processed transactions rose 9%, while payments volume increased 8%. The number of Visa credit-card customers grew 4% and debit-card customers 8%.

Visa has now grown both earnings per share and sales in 11 consecutive quarters. It has topped consensus profit and sales estimates in each of the past 14 quarters.

Visa noted softer consumer spending trends in January, blamed on the cold weather. Even so, U.S. consumer sentiment rose in January to its highest level since July 2021, according to a survey conducted by the University of Michigan. The cumulative growth in consumer sentiment over the past two months hasn’t been matched since 1991.

Management expects revenue to climb 7% to 9% for the March quarter and growth in the low-double-digits for fiscal 2024 ending September. Per share profits are projected to climb roughly 17% to 19% for the current quarter and 10% to 13% for the fiscal year. Visa shares rallied to all-time highs after the report, and analyst estimates rose for both the March quarter and fiscal 2024.

Conclusion

Visa shares aren’t cheap, given their Quadrix® Value score of 22. But the stock’s trailing P/E ratio remains below its five-year norm of 31. At 27 times estimated next 12-month earnings, Visa trades well above the average of 17 for transaction and payment-processing stocks in the S&P 1500 Index — but still below its nearest rival MasterCard ($476; MA), which has a forward P/E ratio of 31. Visa’s per-share profits are projected to climb 14% over the next 12 months, more than doubling its industry norm of 6%.

Visa Inc., P.O. Box 8999, San Francisco, CA 94128, (650) 432-3200, www. visa.com.

 

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Dec '23 $2.41 vs. 2.18 9% $250.06 - $227.68 29 - 26
Sep '23 2.33 vs. 1.93 11% 238.28 - 216.14 29 - 26
Jun '23 2.16 vs. 1.98 12% 234.30 - 206.16 29 - 25
Mar '23 2.09 vs. 1.79 11% 219.98 - 174.60 28 - 22

 

Year
(Jan.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2023 $32.7 $8.77 $1.80 $250.06   174.60 29 - 20
2022 29.3 7.50 1.50 236.96 - 174.83 32 - 23
2021 24.1 5.91 1.28 252.67 - 179.23 43 - 20
2020 21.8 5.04 1.20 217.35 - 133.93 43 - 27

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
81 84 22 97 92 74 71 14

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.