Visa Charges To All-Time Highs

4/1/2013


  Recent Price
$167
  Dividend
$1.32
  Yield
0.8%
  P/E Ratio
26
  Shares (millions)
669
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$167.78 - $111.94

Since becoming a publicly traded company in 2008, Visa's ($167; V) sales have advanced more than 66%, with per-share profits jumping 175%. The impressive growth should continue in 2013, with per-share profits expected to jump 18% on an 11% increase in sales. The stock is not cheap at 23 times the fiscal 2013 consensus earnings estimate, but Visa seems capable of reaching $190 to $200 over the next year. Visa is a Buy and Long-Term Buy.

Capturing lots of crumbs

While nearly everyone is familiar with the Visa name, its business tends to be misunderstood. Visa is not a bank. The firm does not issue credit cards or extend credit to consumers. In fact Visa isn't really a financial-services company as much as a technology company. Its processing network facilitates transactions between consumers, businesses, financial institutions, and governments. Visa gets a fee on the transactions processed on its network, which totaled roughly 16 billion in the December quarter. Visa has the capability of handling more than 24,000 transaction messages every second.

The adoption globally of credit and debit cards to transact business has driven growth. Debit card payments, in particular, have been rising and now represent nearly 60% of all Visa transactions. Visa provides services in more than 200 countries. And while the U.S. is still its single largest geographic market, the rest of the world accounts for some 60% of total transaction volume (in dollars) and nearly 40% of payment transactions. This business is growing much faster than the U.S. For example, total transaction volume in CEMEA (Central Europe, Middle East, and Africa) surged 16.3% in 2012 versus a 2.4% increase in the U.S.

Visa may expand its overseas presence with the acquisition of Visa Europe, a separate operating entity. If the banks that own Visa Europe exercise a put option and force Visa to buy the European business, it could cost $3 billion to $7 billion and pave the way for a new rival. But a merger with Visa Europe could lead to efficiency gains and marketing improvements. With $6.1 billion in cash and securities and no long-term debt at the end of 2012, Visa has the firepower to fund deals.

One risk is the emergence of new competition, notably PayPal. As PayPal attempts to expand into physical stores, it may see more of a competitive response from the established players. MasterCard ($535; MA) recently announced that it will impose a fee on "digital wallet" operators like PayPal beginning in June. And while Visa has said it does not plan to impose a fee at this time, Visa CEO Charlie Schwarf has gone on record saying that such a fee is "totally appropriate."

The consensus earnings estimate for fiscal 2013 ending in September is $7.34 per share. Given that the firm has beaten the consensus estimate in each of the last four quarters, that estimate may prove conservative.

Visa boosted its dividend 50% late last year. The quarterly dividend, which has more than tripled since 2009, should see another big hike in the December quarter.

An annual report for Visa, Inc. may be obtained at PO Box 8999, San Francisco, CA 94128-8999, (650) 432-7644, www.corporatevisa.com.

VISA
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '12
1.82
vs.
1.49
12%
152.51
-
134.87
25 - 22
Sep '12
1.54
vs.
1.27
15%
136.65
-
119.10
23 - 20
Jun '12
1.56
vs.
1.25
10%
125.35
-
111.94
22 - 20
Mar '12
1.60
vs.
1.23
15%
120.70
-
98.33
23 - 19
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
10.42
6.20
0.99
136.65
-
81.71
22 - 13
2011
9.19
5.00
0.67
94.75
-
66.50
19 - 13
2010
8.07
3.91
0.53
97.19
-
64.90
25 - 17
2009
6.91
3.10
0.44
74.99
-
41.78
24 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
68
68
21
94
92
85
53

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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