2ndQuarterlyReport for Visa Inc.Date:May8, 2018
Visa (V)[NYSE] is a global payments technology company that connects consumers, businesses, banks, and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and checks.
Percentage change in Sales from year ago quarter13.3%
Percentage change in Earnings per Share from year ago quarter37.0%
Is company meeting our target sales & earnings estimates?Met both Sales and Earnings estimates.
Pre-tax Profit on sales trend? Up
Return on equity trends? Up
Debt?Up
Current PE is 32.4
Where does it fall in my estimated High/low range of PE’s?Over my upper end
Signature PE =27
Club cost basis for this stock is 54.58 Current price is 128.16(as of 5/04/2018)– At record high
Current fair value: Morningstar:$122.00 (Up $4 from last quarter) S&P:$??
My SSG Total Return is 7.6% Projected Average Return is 4.4%
What will drive future growth: From Value Line: “… Visa is poised for stellar results over the next several years. Transaction activity is expanding at a solid clip. On point, total dollar volumes in Europe, Latin America, Asia/Pacific, and the segment comprised of Central Europe, the Middle East, and Africa increased 7.6%, 8.2%, 7.0%, and 6.5%, respectively, in the second quarter, versus the same span in fiscal 2017. Activity in North America was also strong, rising 9.3% and 9.5%, respectively, in the U.S. and Canada. Visa's international operations accounted for 61% of the total in the latest three-month stretch, compared with 60% in the prior year.”
Visa will be taking advantage of a significant international advertising opportunity during this year’s World Cup (soccer) in Russia.
On April 17, 2018, Visa “today announced professional footballer, Zlatan Ibrahimović, will be the new face of its global marketing campaign in anticipation of the 2018 FIFA World Cup Russia™. As the Official Payment Services Partner of FIFA, Visa, in collaboration with Zlatan, will help fans not miss a moment of the action this summer.” He is one of the most decorated active footballers in the world, and is considered one of the best players of his generation.
Morningstar: “Visa is winning the payment wars”
Analyst Note 4/25/2018
Wide-moat Visa generated a 13% increase in net operating revenue and a 30% increase in adjusted earnings per share during the second quarter of its 2018 fiscal year. Management expects net revenue growth to continue at a low-double-digit clip through the remainder of the year, and we see no reason the company should not be able to attain its goals. The results were broadly in line with our expectations, and we are raising our fair value by $4 per share to $122 based primarily on the time value of money since our last update.
Currency movements helped the company record a 13% increase in total payments volume, with both credit and debit volumes growing by double digits in the December quarter and accelerating in the March quarter. International (cross-border) transaction revenues benefited even more, growing at 19% year over year. Client incentives continued to grow faster than gross revenues, and management expects these payments to grow in the third fiscal quarter. Reported operating margin continued to expand, growing by 3 percentage points to 66% on a GAAP basis, despite increased investment. Visa’s personnel (up 17%) and marketing (up 35%) expenses both grew faster than net operating revenue during the quarter, but adjusted general and administrative expenses were held to just a 4% increase. We believe operating margin expansion will be limited over the next several years as Visa appeases its customers with client incentives and spends to keep up with the changing payment industry.
Visa and its peers continue to target markets outside their traditional stronghold in the consumer-to-business space. Earlier this year, Visa acquired Fraedom, a provider of commercial payment and expense management solutions. We think acquisitions that add to Visa’s service capabilities are an acceptable use of cash, especially as the company’s stock price hovers around our fair value estimate.
Bulls Say
•Visa is king of the hill in the digital payment market and will not be easily toppled.
•The ability to deal with hundreds of legal and regulatory frameworks around the world is a significant barrier to entry.
•Visa has an established network and brand and has only to adopt new technologies for its own purposes in order to fend off competition.
Bears Say
•The global financial system is becoming increasingly regulated, and the biggest players will be the first victims.
•Visa's already large market share, and its relative dependence on U.S. spending and debit cards, may place it at a growth disadvantage.
•The increasing use of mobile technologies will usher in a new payment paradigm at some point.
Value Line:
May 4, 2018 Commentary
Visa Inc. finished the first half of fiscal 2018 on a strong note. (Year ends on September 30th.) The electronic payments processor logged revenues and share earnings of $5.073 billion and $1.11, respectively, marking advances of 13% and 29% from the year-earlier measures. (We had looked for $5.068 billion and $1.02 a share, respectively, on the top and bottom lines.) Moreover, Visa is poised for stellar results over the next several years. Transaction activity is expanding at a solid clip. On point, total dollar volumes in Europe, Latin America, Asia/Pacific, and the segment comprised of Central Europe, the Middle East, and Africa increased 7.6%, 8.2%, 7.0%, and 6.5%, respectively, in the second quarter, versus the same span in fiscal 2017. Activity in North America was also strong, rising 9.3% and 9.5%, respectively, in the U.S. and Canada. Visa'sinternational operations accounted for 61% of the total in the latest three-month stretch, compared with 60% in the prior year. (All figures are presented on a constant-dollar basis.) We've raised our current-year share-net call, while introducing a forecast for fiscal 2019. In light of Visa's excellent first-half performance, we've lifted our fiscal 2018 bottom-line estimate by $0.20 a share, to $4.40, while maintaining our top-line target at $20.2 billion; the former would represent growth of 25% 27% from 2017, and the latter would be an improvement of 9% 11%. For fiscal 2019, our revenue and earnings forecasts are set at $22.4 billion and $5.20 per share, respectively, marking advances of 10% 12% and 17% 19% from our 2018 projections. Visa would make a fine addition to most investment portfolios. It remains the leader in the electronic payments space,registering more transactions than its closest competitors (American Express, MasterCard, and Discover Financial Services) combined. Too, the equity carries our top rank for Safety (1), and the company garners a stellar mark for Financial Strength (A++). Too, the stock was recently trading near an all-time high, and is ranked to outpace the market in the year ahead (Timeliness: 2, Above Average). Finally, Visa has decent risk-adjusted total return potential to 2021 2023. Sharif Abdou May 11, 2018
Recommend: Hold