The financial transaction services sector is well positioned to gain due to the widespread adoption of contactless payments, the rise of e-commerce and changing spending trends.
Visa Inc. (V) operates as a financial transaction services company that helps facilitate digital payments between consumers, merchants, financial institutions, businesses, strategic partners and government entities.
It operates VisaNet, a transaction processing network that enables the authorization, clearing and settlement of payment transactions. In addition, the Company offers value-added card products, platforms and services. It provides services under the Visa, Visa Electron, Interlink, VPAY and PLUS brands.
Despite macroeconomic uncertainty, exchange rate headwinds and the suspension of business in Russia, V beat consensus estimates for EPS and revenue in the most recently reported quarter. Its EPS beat analyst estimates by 13.3%, while its revenue beat consensus estimates by 2.9%.
The company saw strong payment volume, cross-border volume and growth in transactions processed in the last quarter. V’s payment volume increased 12% year-over-year, while total cross-border volume increased 40% year-over-year. Its processed transactions were also up 16% year over year in the last quarter.
The volume of cross-border travel exceeded 2019 levels for the first time since the start of the pandemic. V Chairman and CEO Alfred F. Kelly, Jr. said, “While the economic outlook is unclear, we remain confident in our ability to execute with discipline and expand Visa’s role at the center of monetary movements.
V’s stock is down 7.4% year-to-date and 12.4% over the past year to close the last trading session at $200.71.
Here’s what could influence V’s performance in the coming months:
Strong finances
V’s net revenue increased 18.7% year-on-year to $7.28 billion for the third quarter ended June 30, 2022. The company’s non-GAAP net income increased 29% year-on-year annual to reach 4.20 billion dollars. Its non-GAAP EPS was $1.98, representing a 33% year-over-year increase. Additionally, its operating profit rose 2.1% year-over-year to $4.14 billion.
Favorable analyst estimates
V’s EPS for fiscal 2022 and 2023 is expected to increase 25.7% and 13.1% year-over-year to $7.43 and $8.41, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 20.7% and 11.3% year-over-year to $29.09 billion and $32.40 billion, respectively. It has exceeded Street EPS estimates in each of the past four quarters.
Profitability above that of the industry
In terms of rolling 12 months Gross margin, the 97.33% of V is 93.4% higher than the industry average of 50.33%. Likewise, its 70.47% year-over-year EBITDA margin is 440% higher than the industry average of 13.05%. Additionally, the stock’s trailing 12-month net income margin of 51.99% is well above the industry average of 4.25%.
POWR ratings are promising
V has an overall rating of B, which is equivalent to a purchase in our POWR Rankings system. POWR ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. V has a B rating for quality, in line with its industry-leading profitability.
It has a B rating for Sentiment, in line with favorable analyst estimates. Additionally, it has a beta of 0.90, justifying its B rating for stability.
V is ranked #7 out of 48 stocks in the Consumer Financial Services industry. Click here to access V’s growth, value and momentum ratings.
Conclusion
Despite the various headwinds plaguing the industry, V has seen strong growth in its payments volume, transactions processed and cross-border volumes. The company is well positioned to benefit from the growing popularity and acceptance of digital and contactless payments.
Given its strong financials, favorable analyst estimates and industry-beating profitability, it might be a good idea to buy the stock now.
How does Visa Inc. (V) compare to its peers?
V has an overall POWR rating of B, which is equivalent to a buy rating. Check out these other consumer financial services stocks with a B (buy) rating: EZCORP, Inc. (EZPW), Regional management company (RM), and Atlanticus Holdings Corporation (TRTA).
V shares fell $0.50 (-0.25%) in premarket trading on Friday. Year-to-date, V is down -6.89%, compared to a -15.08% rise in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Ever since he was in elementary school, Dipanjan had been interested in the stock market. This enabled him to obtain a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan is particularly interested in reading and analyzing emerging trends in financial markets. After…
