As the acceptance of digital payments expands in the economy, there is a fundamental shift from cash to electronic transactions. The need for digital transactions is anticipated to increase as e-commerce grows and consumers favor real-time payments. The global digital payment market is expected to expand at a CAGR of 20.8% by 2030 to $96.07 billion.
Given the solid prospects of the industry, digital payments giant Visa Inc.’s (V) stock could be a quality addition to one’s investment portfolio.
During the second quarter, V’s EPS and revenue exceeded analyst estimates. Its EPS was 5.2% above the consensus estimate, while its revenue beat analyst estimates by 2.5%. In the U.S., quarterly payments volume rose 10%, while its global quarterly payments volume was up 13% year-over-year, excluding Russia and China.
The company’s processed transactions increased 12% year-over-year during the second quarter. Its Visa Direct cross-border P2P transactions, excluding Russia, grew nearly 50% in the second quarter.
V’s CEO Ryan Mclnerney said, “Visa’s strong fiscal second quarter performance reflects continued focus on our growth levers – consumer payments, new flows, and value-added services.”
“While there is macroeconomic uncertainty, I feel confident in Visa’s ability to manage through changing environments,” he added.
V’s stock has gained 27.2% in price over the past nine months and 15.1% over the past year to close its last trading session at $227.96.
Here’s what could influence V’s performance in the upcoming months:
Robust Financials
For the fiscal second quarter that ended March 31, 2023, V’s net revenues increased 11% year-over-year to $7.99 billion. The company’s non-GAAP net income increased 14.3% over the year-ago quarter to $4.38 billion. In addition, its non-GAAP EPS came in at $2.09, representing a 16.8% increase from the prior-year quarter.
High Profitability
In terms of the trailing-12-month EBIT margin, V’s 66.94% is 227.6% higher than the 20.44% industry average. Its 50.59% trailing-12-month levered FCF margin is 226.4% higher than the 15.50% industry average. Likewise, its 22.31% trailing-12-month Return on Total Capital is 328.4% higher than the industry average of 5.21%.
Optimistic Analyst Estimates
The consensus EPS estimate of $8.59 for the fiscal year 2023 represents a 14.5% improvement year-over-year. The consensus revenue estimate of $32.56 billion for the same year indicates an 11.1% increase over the prior-year period. Its EPS and revenue for fiscal 2024 are expected to increase 13.6% and 11% year-over-year to $9.76 and $36.15 billion, respectively.
V's EPS and revenue for the quarter ending June 30, 2023, are expected to increase 6.6% and 10.8% year-over-year to $2.11 and $8.06 billion, respectively.
Solid Historical Growth
V’s revenue grew at a CAGR of 9.1% over the past three years. Its EBITDA grew at a CAGR of 9% over the past three years. In addition, its EPS grew at a CAGR of 10.4% in the same time frame.
POWR Ratings Show Promise
V has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor 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.
It has a B grade for Stability in sync with its 0.97 beta. Its favorable analyst estimates justify its B grade for Sentiment.
V is ranked #3 out of 47 stocks in the Consumer Financial Services industry. Click here to access V’s Growth, Value, and Momentum ratings.
Bottom Line
Despite the turbulent macroeconomic environment, V reported solid payments volume, earnings, and revenue growth in the second quarter.
The company plans to take advantage of the massive global market for digital payments. Its long-term growth engine is likely to be consumer payments.
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?
While V has an overall POWR Ratings grade of B, equating to a Buy rating, one may also want to consider these other stocks within the Consumer Financial Services industry with an A (Strong Buy) or B (Buy) rating: Regional Management Corp. (RM), EZCORP, Inc. (EZPW), and OneMain Holdings, Inc. (OMF).
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V shares were trading at $234.11 per share on Thursday afternoon, up $6.15 (+2.70%). Year-to-date, V has gained 13.12%, versus a 15.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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