Stock (Symbol)

Visa (V)

Stock Price

$74

Sector

Financial

Data is as of

March 21, 2016

Expected to Report

Apr 28 -May 2

Company Description

Visa Inc. is a payments technology company. The Company is engaged in operating a processing network, VisaNet, which facilitates authorization, clearing and settlement of payment transactions across the world. The Company provides its services to consumers, businesses, financial institutions and governments in more than 200 countries and territories for electronic payments. The Company offers fraud protection for account holders and rapid payment for merchants. The Company provides a variety of payment solutions that support payment products that issuers can offer to their account holders, such as pay now with debit, pay ahead with prepaid or pay later with credit products. The Company offers a suite of digital, eCommerce and mobile products and services. Source: Thomson Financial

Sharek’s Take

Visa (V) is battling many headwinds, and that’s causing slower than normal profit growth. Management indicates the strong U.S. dollar, reduced volume due to the strong dollar, a volatile China and low oil prices as headwinds the company is dealing with today. V has an estimated long-term growth rate of 17% but last qtr Visa had just 10% profit growth on 5% sales growth (8% sales growth without F/X). Two qtrs ago V announced it plans to merge with Visa Europe and I felt that would boost numbers — and the stock — but it didn’t. The deal is expected to close in the 2nd qtr, and that should boost profits long-term but today I’m looking at estimates of 6% and -7% profit growth the next 2 qtrs, with 18% and 14% seen the qtrs after. So it might not be until late 2016 before we see good profit growth. At the beginning of 2016 Sam’s Club started accepting Visa cards, previously they only took them for online purchases, and that should help sales. At 26x earnings I think this stock is a little overvalued. Still, Visa is a big sound company that’s grown profits every years since it went public and carries a high safety rating — great long-term investment with the high-teens est long-term growth rate — but the stock’s not a value at this time.

One Year Chart

Visa posted 10% profit growth last qtr, meeting analyst estimates. But profit estimates declined, with 2016’s dropping from $2.88 to $2.80. Estimates look poor for the next 2 qtrs, then are expected to climb back into the teens thereafter, but these qtrly estimates have declined for 2 straight qtrs. This +6% you see next qtr used to be +17% six months ago (ouch). The P/E of 26 is high compared to the 17% Est LTG but you’re paying for quality.

Fair Value

Visa pays a 1% dividend in addition to having an estimates long-term growth rate of 17%. Add those together and investors can guestimate on a 18% total annual return in the long run. Since V has grown profits like this (right) each year, I feel the stock is worth 25x earnings. That’s a $74 stock with a $70 Fair Value. So today this stock isn’t a bargain, but it does come with safety.

Bottom Line

Visa is a fan favorite amongst mutual fund managers as they can buy it and not worry about it. Even with the slower growth and horrible stock market conditions during the first 2 months of the year the stock held up well. But to me V is a little overvalued with blah profit growth so I’m not as high on it. V ranks 27th of 33 stocks in the Growth Portfolio Power Rankings and 29th of 34 stocks in the Conservative Portfolio Power Rankings.