Visa (V, Financial) is expected to report its fourth quarter earnings results Oct. 24 after market close. Consensus EPS forecast is 73 cents on the back of $4.22 billion in revenue. Visa missed revenue estimates in the third quarter, and expenses related to the acquisition of European operations hurt the world’s largest payments processor.
Visa aquired Visa Europe in June. The $21.2 billion deal to merge the two brands into a single one was expected to improve scale and efficiency for the company.
Despite the company’s ongoing tussle with major retailers such as Walmart (WMT, Financial), Visa won a major victory by getting PayPal (PYPL, Financial) to work with it instead of against it. Payment volume growth is a major indicator for companies like Visa, MasterCard (MA, Financial) and PayPal, and that metric grew by 10% for Visa during the third quarter compared to the previous year. Payment volume has now grown by more than 10% in the last three quarters, and the trend should continue in the fourth quarter as well.
In the first nine months of the current fiscal Visa’s total operating revenue grew from $10.309 billion last year to $10.821 billion, a growth of 4.9%. Visa expects its annual revenue to grow in the high single-digit to low double-digit range on a constant currency basis. It's clear that the company expects growth to accelerate in the fourth quarter, and it does not expect any nasty surprises during the fourth quarter.
Since the start of this year Visa’s stock price has steadily moved upward with a year-to-date return of 11.52%. Of the top four payments processing companies, Visa and PayPal are currently the most expensive trading at around 35 times earnings.
Despite missing Wall Street revenue estimates during the third quarter, Visa’s stock price has continued its forward momentum, and if it drops after the earnings release that would be a great time to add the stock to your portfolio.
A dividend yield of less than 1% may look extremely unappealing, but considering the future potential of the company, high levels of operating margins and the moat it enjoys, this is one stock that can keep on giving for a long time.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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