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Analyzing Visa (V) Q3 Performance: Bullish Buy or Bearish Bye?
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Payments technology juggernaut Visa Inc. (V - Free Report) reported mixed third-quarter fiscal 2024 results on Jul 23, 2024. Initially, the stock dipped due to concerns about slowing spending growth and potential recessionary pressures. However, it has recovered again as investors recognized the company's strong long-term prospects. Despite expectations of a downturn in consumer spending, Visa's substantial market presence offers some reassurance to investors.
Is this spending growth uncertainty a buying opportunity, or should investors steer clear? Before addressing this question, let's review the highlights of Visa's third-quarter fiscal 2024 results and their implications for the company's future.
4 Major Takeaways From Q3 Earnings
Earnings Beat, Sales Miss: Visa’s EPS of $2.42 beat the Zacks Consensus Estimate by a penny and 12% year over year. However, the top line of $8.9 billion missed the consensus mark by 0.1%, marking an unusual miss for the company. Its payment volumes grew by 7% year-over-year on a constant-dollar basis but fell short of the Zacks Consensus Estimate by 2.9%.
Transaction & Cross-border Volumes Rise: Visa’s processed transactions grew 10% year over year to 59.3 billion and beat the consensus estimate by 0.6%. On a constant-dollar basis, the cross-border volume climbed 14% year over year in the quarter under review. These double-digit growth rates show no turbulence, at least on the surface.
Weakening Spending Growth: The high-spend consumer segment witnessed stable growth in the quarter, but the lower-spend consumer category is cutting back on spending. This category, with decreasing disposable income and thinning savings, is likely to witness cooling consumer spending growth, especially in high-ticket and discretionary items. If the deceleration continues, it can signal a potential recession, according to some analysts.
Visa Unfazed: Despite the concerns of spending being affected by factors like weather, promotional shopping events’ timing and technology outage, Visa reiterated its full-year guidance for low-double-digit revenue growth and earnings growth in low-teens. Also, since it does not hold debt risk associated with its credit cards, an increase in delinquencies in a high-interest rate environment will not affect its results.
Despite the concerns from investors, global cashless payment volumes are bound to increase as economies push for further digitization. Visa, with its massive size ($485.8 billion market cap), market shareand extensive network, is well positioned to capitalize on that growing demand. Even if the company’s fee income takes a hit in the short run due to a slowdown in spending growth, its expanding partnerships and value-added services, strong networks and healthy margins will keep it resilient.
Visa is a highly profitable company, and it keeps boosting shareholder value, reflecting its operating strength. It rewarded $5.83 billion to shareholders via share buybacks ($4.77 billion) and dividends ($1.06 billion) in the last reported quarter. It had leftover authorized funds of $18.9 billion under its repurchase program as of Jun 30, 2024. Its dividend yield of 0.78% is higher than the industry average of 0.7%.
Image Source: Zacks Investment Research
Its cryptocurrency innovation efforts and digital wallet products will continue bringing more and more consumers and businesses into its network. Its investments in enriching cyber security and fraud prevention measures make it a safer choice for consumers and merchants. With rising cases of fraudulent activities, Visa’s services will attract more clients.
However, its business may face some regulatory hurdles, which can affect its growth in the short run. Ongoing and potential legal battles, including some lawsuits, could lead to financial liabilities and increased competition.
The Credit Card Competition Act of 2023, which is designed to introduce more competition into the credit card network market and reduce costs for merchants, may affect V’s growth rate. Another major payment company, Mastercard Incorporated (MA - Free Report) , is also the target of the bill, where the congress intends to curb the duopoly these two companies are enjoying now (outside the Eastern Hemisphere, where UnionPay dominates).
Estimate Revisions
The Zacks Consensus Estimate for Visa’s fiscal 2024 and fiscal 2025 EPS implies a 13% and 11.8% uptick, respectively, on a year-over-year basis. However, the company is witnessing mixed estimate revisions for the current and the next year. The consensus mark for fiscal 2024 and fiscal 2025 revenues suggests a 9.6% and 9.9% increase, respectively.
Image Source: Zacks Investment Research
Price Performance & Valuation
Visa stock has grown 2.4% in the year-to-date period, underperforming the industry’s gain of 3.9% and the S&P 500 Index’s rally of 12.4%. In comparison, its peers like Mastercard and American Express Company (AXP - Free Report) have increased 8.4% and 24%, respectively, during this time.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, despite a weaker-than-market price appreciation, Visa appears relatively expensive, which may constrain short-term gains and make it less appealing compared to other investment opportunities. Going by its price/earnings ratio, the company is trading at a forward earnings multiple of 24.45X, higher than the industry average of 21.83X.
Image Source: Zacks Investment Research
Wrapping Up: A Steady Hold
Visa's strong market position, stability and promising growth prospects make it a compelling stock to retain in the portfolio. Growth in cashless payments, which is likely to support its expanding network, shareholder-friendly moves,and high profitability features, make this Zacks Rank #3 (Hold) company a worthy keep for existing shareholders. However, new investors may want to wait for a better entry point, given the stock’s high valuation and regulatory challenges. Moreover, keeping an eye on consumer spending trends is crucial, as they are indicative of the economy's health and can significantly impact Visa's fee income.
Image: Bigstock
Analyzing Visa (V) Q3 Performance: Bullish Buy or Bearish Bye?
Payments technology juggernaut Visa Inc. (V - Free Report) reported mixed third-quarter fiscal 2024 results on Jul 23, 2024. Initially, the stock dipped due to concerns about slowing spending growth and potential recessionary pressures. However, it has recovered again as investors recognized the company's strong long-term prospects. Despite expectations of a downturn in consumer spending, Visa's substantial market presence offers some reassurance to investors.
Is this spending growth uncertainty a buying opportunity, or should investors steer clear? Before addressing this question, let's review the highlights of Visa's third-quarter fiscal 2024 results and their implications for the company's future.
4 Major Takeaways From Q3 Earnings
Earnings Beat, Sales Miss: Visa’s EPS of $2.42 beat the Zacks Consensus Estimate by a penny and 12% year over year. However, the top line of $8.9 billion missed the consensus mark by 0.1%, marking an unusual miss for the company. Its payment volumes grew by 7% year-over-year on a constant-dollar basis but fell short of the Zacks Consensus Estimate by 2.9%.
Transaction & Cross-border Volumes Rise: Visa’s processed transactions grew 10% year over year to 59.3 billion and beat the consensus estimate by 0.6%. On a constant-dollar basis, the cross-border volume climbed 14% year over year in the quarter under review. These double-digit growth rates show no turbulence, at least on the surface.
Weakening Spending Growth: The high-spend consumer segment witnessed stable growth in the quarter, but the lower-spend consumer category is cutting back on spending. This category, with decreasing disposable income and thinning savings, is likely to witness cooling consumer spending growth, especially in high-ticket and discretionary items. If the deceleration continues, it can signal a potential recession, according to some analysts.
Visa Unfazed: Despite the concerns of spending being affected by factors like weather, promotional shopping events’ timing and technology outage, Visa reiterated its full-year guidance for low-double-digit revenue growth and earnings growth in low-teens. Also, since it does not hold debt risk associated with its credit cards, an increase in delinquencies in a high-interest rate environment will not affect its results.
For a detailed analysis, read our blog: Visa Q3 Earnings Beat on Processed Transactions, Sales Miss.
Assessing V’s Potential
Despite the concerns from investors, global cashless payment volumes are bound to increase as economies push for further digitization. Visa, with its massive size ($485.8 billion market cap), market shareand extensive network, is well positioned to capitalize on that growing demand. Even if the company’s fee income takes a hit in the short run due to a slowdown in spending growth, its expanding partnerships and value-added services, strong networks and healthy margins will keep it resilient.
Visa is a highly profitable company, and it keeps boosting shareholder value, reflecting its operating strength. It rewarded $5.83 billion to shareholders via share buybacks ($4.77 billion) and dividends ($1.06 billion) in the last reported quarter. It had leftover authorized funds of $18.9 billion under its repurchase program as of Jun 30, 2024. Its dividend yield of 0.78% is higher than the industry average of 0.7%.
Its cryptocurrency innovation efforts and digital wallet products will continue bringing more and more consumers and businesses into its network. Its investments in enriching cyber security and fraud prevention measures make it a safer choice for consumers and merchants. With rising cases of fraudulent activities, Visa’s services will attract more clients.
However, its business may face some regulatory hurdles, which can affect its growth in the short run. Ongoing and potential legal battles, including some lawsuits, could lead to financial liabilities and increased competition.
The Credit Card Competition Act of 2023, which is designed to introduce more competition into the credit card network market and reduce costs for merchants, may affect V’s growth rate. Another major payment company, Mastercard Incorporated (MA - Free Report) , is also the target of the bill, where the congress intends to curb the duopoly these two companies are enjoying now (outside the Eastern Hemisphere, where UnionPay dominates).
Estimate Revisions
The Zacks Consensus Estimate for Visa’s fiscal 2024 and fiscal 2025 EPS implies a 13% and 11.8% uptick, respectively, on a year-over-year basis. However, the company is witnessing mixed estimate revisions for the current and the next year. The consensus mark for fiscal 2024 and fiscal 2025 revenues suggests a 9.6% and 9.9% increase, respectively.
Image Source: Zacks Investment Research
Price Performance & Valuation
Visa stock has grown 2.4% in the year-to-date period, underperforming the industry’s gain of 3.9% and the S&P 500 Index’s rally of 12.4%. In comparison, its peers like Mastercard and American Express Company (AXP - Free Report) have increased 8.4% and 24%, respectively, during this time.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, despite a weaker-than-market price appreciation, Visa appears relatively expensive, which may constrain short-term gains and make it less appealing compared to other investment opportunities. Going by its price/earnings ratio, the company is trading at a forward earnings multiple of 24.45X, higher than the industry average of 21.83X.
Image Source: Zacks Investment Research
Wrapping Up: A Steady Hold
Visa's strong market position, stability and promising growth prospects make it a compelling stock to retain in the portfolio. Growth in cashless payments, which is likely to support its expanding network, shareholder-friendly moves,and high profitability features, make this Zacks Rank #3 (Hold) company a worthy keep for existing shareholders. However, new investors may want to wait for a better entry point, given the stock’s high valuation and regulatory challenges. Moreover, keeping an eye on consumer spending trends is crucial, as they are indicative of the economy's health and can significantly impact Visa's fee income.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.