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Visa’s Profit Growth is Back to Normal

Stock (Symbol)

Visa (V)

Stock Price

$112

Sector
Financial
Data is as of
November 27, 2017
Expected to Report
Jan 31
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. Source: Thomson Financial
Sharek’s Take
David SharekVisa (V) is having a banner 2017. The stock is up more than 40% with profits being pushed higher (23% on avg the last 4 qtrs) by Visa Europe (which Visa acquired in 2016) Costco’s credit card business and USAA’s business. These new deals pushed V’s profit growth rate up, but now growth has now officially normalized back to the mid-teens. And since the stock has gone up faster than profits have, I feel this stock could digest some of its gains in 2018. Looking ahead, International and e-commerce is where the growth opportunity lies for Visa. The global opportunity to digitize cash and check is enormous — Visa CEO in an earnings call 4qtrs ago. V is a very safe stock that’s delivered more than 20% profit growth on average since it went public in 2008. It’s what I consider a core holding for both growth and conservative investors. Management spent $2 billion on stock buybacks and dividends — last qtr alone. Visa’s profits are expected to climb an average of 17% the next 4 qtrs, and since the company has been beating the street I think 20% is achievable. With an Est. LTG of 17% plus a 1% yield, my Fair Value is 28 times earnings. That gives me a Fair Value price of $114 in 2018 and $132 in 2019. With the stock at $112 now, I feel this is a good time for investors to cash in and sell some of their shares to increase their cash position going into the New Year.
One Year Chart
Last qtr Visa’s sales growth slowed to 13% from 26% 2QtrsAgo.  Profit growth slowed from 25% to 15%. Still, 15% is good and that’s what I feel Visa will grow at naturally. And analysts had estimated just 9% growth. Qtrly Estimates are for 14%, 10%, 19% and 26% profit growth the next 4 qtrs. Annual profit estimates have increased in each of the last 4 qtrs, but not by much. The Est. LTG of 17% is exceptional for a safe stock such as this. 
Fair Value
I think this stock is fairly valued now. The nice thing is V has a fiscal year-end on September 30th, so we will be looking at the $132 Fair Value sometime next Summer.
Bottom Line
2017 was a banner one for Visa, with profit growth of 23%. But this year likely won’t be as good, and with the swift upward rise in the stock price the last 12 months I feel this stock could take a breather in early 2018. Thus, this would be a good time to take profits and sell some shares, but don’t sell out entirely as this is a bellweather stock that’s performed well for almost a decade now. This stock has a lot to offer including high safety, an Est. LTG of 17% a year, a 1% yield and a growing market in electronic payments. Management also buys back stock in addition to acquisitions. V ranks 24th in the Growth Portfolio Power Rankings and 13th in the Conservative Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

24 of 35

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

13 of 32

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