Despite several challenges, payment company Visa (V) has come a long way and is expected to keep benefiting from the rise in cashless transactions. However, is buying the stock paying off? Keep reading to find out.
In 2008, fintech company Visa Inc. (V) went public in a banking climate that was similar to today's following the collapse of Bear Stearns. Its IPO raised $17.90 billion and was the largest sum of proceeds for a US IPO at the time.
Despite regulation, competition, and merchant lawsuits concerns, the company's brand is well established, and it has a vast network of merchants and financial institutions that use its services. V has a market capitalization of $466.20 billion currently.
Let's assess if buying the stock is finally paying off or not.
Digital payments are rapidly gaining popularity in the US and are expected to grow at a CAGR of 14.7%, leading to an estimated total transaction value of $3.53 trillion by 2027.
Shares of V have gained 24.7% over the past six months and 7.5% over the past three months, closing the last trading session at $221.81. The stock is trading above its 200-day moving average of $207.96.
In addition, the payment giant reported better-than-expected results in its first quarter of fiscal 2023. Its revenues exceeded analysts' expectations by 3.1%, growing 12% year-over-year. Non-GAAP EPS also increased by 21%, surpassing analysts' estimates by 8.4%.
Moreover, V's revenue and EBITDA have increased at CAGRs of 8.7% and 8.8% over the past three years. Its net income and EPS have increased at CAGRs of 7% and 9.3% over the past three years.
Here is what could shape V's performance in the near term:
Stable Dividend Record
V returned $4 billion in capital to shareholders through dividends and share repurchases in the fiscal first quarter.
While the company has a four-year dividend yield of 0.62%, V pays an annual dividend of $1.80 per share, which translates to a yield of 0.81% on the current share price. The company's dividend payouts have grown at CAGRs of 14.5% over the past three years and 17.6% over the past five years.
Moreover, the company has raised its dividends for 14 consecutive years.
Robust Financials
V's net revenues increased 12% year-over-year to $7.94 billion in the fiscal 2023 first quarter ended December 31, 2022. The company's operating income grew 6.6% year-over-year to $5.09 billion.
Also, its non-GAAP net income rose 17.4% year-over-year to $4.58 billion, while non-GAAP EPS increased 20.4% from the year-ago quarter to $2.18.
Favorable Analyst Estimates
Analysts expect V's revenue to increase 7.9% year-over-year to $7.76 billion for the fiscal second quarter ending March 2023. The company's EPS for the current quarter is expected to rise 10.3% year-over-year to $1.98.
Street expects V's revenue to increase 10.2% year-over-year to $32.29 billion in the fiscal year 2023. The company's EPS for the current year is expected to grow 13% year-over-year to $8.47. Moreover, the company has surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
High Profitability
V's trailing-12-month EBIT margin of 67.14% is 203% higher than the industry average of 22.16%. Its trailing-12-month EBITDA margin of 70.09% is 224.9% higher than the industry average of 21.57%. Also, its trailing-12-month levered FCF margin of 50.02% is 175.2% higher than the industry average of 18.18%.
Additionally, the stock's trailing-12-month ROCE, ROTC, and ROTA of 43.63%, 22.12%, and 17.77% are remarkably higher than the industry averages of 11.15%, 5.04%, and 1.15%, respectively.
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-profit margins.
Also, it has a B grade for Sentiment, in sync with favorable analyst estimates.
V is ranked #6 in the 46-stock Consumer Financial Services industry.
Click here to access V's additional POWR Ratings for Growth, Value, Stability, and Momentum.
Bottom Line
V's IPO in 2008 is widely regarded as one of the most successful IPOs in history. The company went public during trepidation in the banking world, but Visa has adapted to changes in the market to remain successful and is expected to thrive ahead.
Moreover, V saw a 7% year-over-year rise in their payments volume in constant-dollar in the fiscal first quarter, and a significant 22% growth in total cross-border volume compared to the same quarter the prior year. Additionally, the company's processed transactions increased by 10% year-over-year in the latest quarter.
Also, Wall Street analysts expect the stock to hit $259.85 in the near term, indicating a potential upside of 17.2%.
Considering the strong financials, stable dividend-paying record and bullish analysts sentiments the stock might be an ideal buy.
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: OneMain Holdings, Inc. (OMF), MainStreet Bancshares, Inc. (MNSB), and FirstCash, Inc. (FCFS).
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V shares rose $0.19 (+0.09%) in premarket trading Tuesday. Year-to-date, V has gained 6.97%, versus a 4.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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