There is a radical shift from cash to digital transactions as the economy adopts digital payments widely. As e-commerce expands and consumers prefer real-time payments, the demand for digital transactions is expected to grow. Given the solid prospects of the industry, digital payments giant Visa Inc. (V) could be a good buy.
In this piece, I have discussed several reasons why it could be wise to buy the stock now.
During the second quarter, V’s EPS and revenue exceeded analyst estimates. Its EPS came 5.2% above the consensus estimate, while its revenue beat the 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.
The rising trend of digital payments is expected to fuel the industry’s growth. The global digital payment market is expected to expand at a compound annual growth rate (CAGR) of 20.8% to $96.07 billion by 2030.
V’s stock has gained 10.7% in price over the past six months and 18.2% over the past year to close its last trading session at $233.21.
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 217.3% higher than the 21.10% industry average. Its 50.59% trailing-12-month levered FCF margin is 242.7% higher than the 14.76% industry average. Likewise, its 22.31% trailing-12-month Return on Total Capital is 333.2% higher than the industry average of 5.15%.
Positive Analyst Estimates
The consensus EPS estimate of $8.57 for the fiscal year 2023 represents a 14.3% improvement year-over-year. The consensus revenue estimate of $32.54 billion for the same year indicates an 11% increase over the prior-year period. Its EPS and revenue for fiscal 2024 are expected to increase 14% and 11.1% year-over-year to $9.78 and $36.15 billion, respectively.
V's EPS and revenue for the quarter ending June 30, 2023, are expected to increase 6.7% and 10.7% year-over-year to $2.11 and $8.06 billion, respectively.
Solid Historical Growth
V’s EBIT grew at a CAGR of 9% over the past three years. Its net income grew at a CAGR of 8.1% 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.
Within the Consumer Financial Services industry, V is ranked #4 out of 49 stocks. Click here to access V’s Growth, Value, and Momentum ratings.
Bottom Line
V’s stock is trading above its 50-day and 200-day moving averages of $227.26 and $212.93, respectively, indicating an uptrend. Despite the ongoing macroeconomic headwinds, V reported solid growth in payments volume, earnings, and revenue in the first quarter.
The company expects to capitalize on the huge scope of digital payments globally. Consumer payments are likely to be its long-term growth driver.
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?
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: Regional Management Corp. (RM), EZCORP, Inc. (EZPW), and Mastercard Incorporated (MA).
What To Do Next?
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V shares were trading at $232.12 per share on Monday afternoon, down $1.19 (-0.51%). Year-to-date, V has gained 12.16%, versus a 10.09% 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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