Indeed, the more consumers use Visa cards, the more attractive the payment network becomes for merchants and the more merchants accept Visa cards, the more convenient the payment network becomes for consumers and so on. In 2020, Mastercard generated total net revenue of $15.3 billion, with a payment volume of $6.3 trillion. Mastercard’s core products include consumer credit, consumer debit, prepaid cards, and a commercial product business.
- Moreover, Visa generates a ton of free cash flow, to the tune of $19.7 billion in fiscal 2023.
- Based on current acquisition plans of companies like Tink and CurrencyCloud, it seems Visa is trying to become an infrastructure provider for competing fintech providers.
- The purpose of doing a reverse split is to increase the price per share by reducing the number of shares while the market cap remains the same.
- At the same time, the Visa logo, which had previously covered the whole card face, was reduced in size to a strip on the card’s right incorporating the hologram.
Working exclusively as network processors, these two companies have a unique edge, but they operate differently. Visa has always sported strong fundamentals, but what was strong in the past has gotten even better. The company does generally not see its expenses rise in line with revenue, as a significant portion of those expenses is fixed. Once the infrastructure to handle transactions is in place, it does not cause significant additional expenses to handle an additional transaction.
Visa Inc. Cl A stock outperforms competitors on strong trading day
An elevated interest coverage ratio such as Visa’s suggests that the company faces minimal risk of being unable to service its debt, regardless of the operating environment that it may find itself in. Thus, investors considering purchasing the stock can be reasonably confident that their investment likely won’t go bankrupt or “go to zero” in their lifetime. Is Visa stock, a proven winner for anyone’s portfolio, a buy right now? Let’s examine this card payments giant to figure out the best course of action for investors. There are several distinct differences between trading CFDs on stocks and investing in shares. Visa is the largest card payment network and shadows China UnionPay and Mastercard.
Operationally, expanding into new geographies and new customer cohorts is a very low-risk and cheap investment for Visa. Overall, with cash transactions totaling $7.6T in 2022, I believe Visa still has a lot of growth opportunities ahead. Visa performed well in its previous fiscal year and looks set up to do that once again in que son cfd the current fiscal year. But is the company in a position to easily cover its interest expenses with earnings before interest and taxes (EBIT)? Let’s dig into Visa’s interest coverage ratio to answer this question. If you prioritize the quality of a company more than its P/E ratio, then buying Visa is a no-brainer decision.
EBIT margin reached 66.8%, a net improvement compared to 62.5% a year ago. Over the past decade, Visa (V -0.03%) shares have soared 404%, easily beating both the S&P 500 and the Nasdaq Composite Index during the same time. Steadily rising revenue and profits will definitely help to push up the stock price of any company. A broad secular trend toward digital payments and away from cash is also a vital part of the investment thesis for this business.
V price to earnings (PE)
Investors look to this gauge of Visa’s performance because it reflects the total volume of business that the company can monetize either by fees or by interest. Visa Inc. (V), the financial payments giant, has posted gains in quarterly revenue and adjusted EPS in each quarter for the past three years. That consistent growth is largely due to Visa’s gains in quarterly global payments volume, which was $2.4 trillion in the most recent quarter. Now, it’s highly uncertain whether Visa can maintain that growth as millions of credit card holders globally stay home and limit spending as a result of the COVID-19 health crisis.
But, if I’m able to buy Visa shares at a discount to fair value, then I’ll be happy with my purchase. If Visa continues to hug that 27x level and grows its EPS like Wall Street expects, then by buying shares today, I’d be setting myself up to generate an annualized rate of return of nearly 12% over the next 3 years or so. And due to the extremely high quality nature of Visa’s company, I’m happy to pay fair value. Right now, the consensus analyst estimate for Visa’s EPS growth in 2024 is 13%. So, it appears that Wall Street agrees with my bullish growth outlook. That’s a big move in a short period of time…and this rally has pushed just about every company on my watch list up above my fair value estimate.
I estimate its fair value at $274.0 per share, reflecting a 21.2% upside. At its current price, Visa is trading at an 11% discount compared to Mastercard based on their P/E ratios, which I find unjustified. It’s also hard to understate Visa’s importance in the daily lives of both merchants and individuals. Using cards as a method of payment is so ingrained in our society that Visa’s competitive standing is almost impossible to disrupt. Along with its duopoly position with Mastercard, Visa has a mutually beneficial relationship with numerous banks that issue its branded credit cards, as well as acquirers that bring on new merchants to the network. Visa Incorporated operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions.
Acquiring banks are responsible for ensuring that their merchants comply with the rules. Overall, the card payment industry is complex, involving merchants, merchant acquiring banks, https://bigbostrade.com/ issuer banking, network processing, and cardholders. Network processors, and specifically Mastercard and Visa, have the freedom to structure their fees any way that they like.
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All of this fundamental growth has led to fantastic dividend growth for Visa shareholders. And this level of growth has been consistent since Visa’s IPO in 2008. Since going public, Visa has generated positive annual EPS growth during 14 out of its 15 fiscal years.
This structuring and reporting is one of the biggest differences between the two largest network processors. Card issuers can also offer other perks, such as identity theft and fraud protection, car rental insurance, and business purchase discounts. Paying a little over 30x net profits for a company that is growing its revenue at a 25% rate is not a bad deal, I believe. In the above chart, we also see that Visa used to trade at a significantly higher valuation in the past, as its 3-year and 5-year median earnings multiples are in the high 30s. Compared to that, Visa is valued at a discount of roughly 20% today – despite the fact that the broad market has run up over the last three to five years.
Visa collects a processing fee (fixed fee) for every monthly payment instead of only one for a non-BNPL transaction. Total consumer spending and the percentage of transactions paid with Visa’s solutions are the key revenue drivers. Consumer spending has historically been very stable and has grown around 5% per year. While it is difficult to forecast macroeconomic data, we believe that a mid-single growth rate is possible going forward.
Further, the company is very sensitive to changes in consumer spending levels, which suffered in 2020 due to the impact of the Covid-19 crisis and economic slowdown. That said, the consumer spending levels have seen some recovery over the recent quarters and are likely to further improve with recovery in the economy. This is also evident from the growth in payments volume and processed transactions in the recent quarter.