In Friday trading, Visa Inc. (V, Financial)’s stock has surged by nearly 1.8% on the back of the company reporting financial results for its fiscal third-quarter 2017. The company posted GAAP net income of $2.1 billion, or EPS of 86 cents, which represents an increase of 26% on the year. The company’s revenue of $4.56 billion was higher by 25.6% year over year. Moreover, Visa managed to beat EPS expectations by five cents and revenue expectations by $200 million.
Visa managed to deliver growth via the acquisition of Visa Europe and growth in payments volume, cross-border volume and processed transactions.
“I’m pleased to report Visa’s fiscal third-quarter results, which reflect strong growth in payments volume, cross-border volume, and processed transactions, which were powered by economic tailwinds in the U.S. and globally,” CEOÂ Alfred F. Kelly Jr. said. “Our results and growth are a reflection of our strategy to pursue the conversion of cash and checks to electronic payments in partnership with our clients around the world.”
For the three months ended March 31, payments volume growth was 38% over the prior year at $1.7 trillion on a constant dollar basis. For the three months ended June 30, cross-border volume growth, on a constant dollar basis, was 147%; and total processed transactions were 28.5 billion, a 44% increase when compared to the previous year.
For fiscal 2017, the company maintained its guidance. Projections are annual net revenue growth and adjusted earnings per share growth of 20% and annual operating margin around 60%.
The payment tech company has enough cash flow generation to declare a quarterly cash dividend of 16.5 cents per share. The current dividend yield is 0.64%, which is lower than the industry median of 2.81%. Further, Visa repurchased 17.8 million shares for an average price of $93.82 per share, a cash outflow of $1.7 billion. Considering the last nine months ended June, Visa repurchased a total of 59.2 million shares for an average price of $86.82 per share. Moreover, the company currently has $5.5 billion of cash available for more share repurchases.
In terms of valuation, the stock sells at a trailing price-earnings (P/E) ratio of 50.02 times, trading at a premium compared to an average of 15.55 times for the industry. To use another metric, its price-book (P?B) ratio of 9.16 times indicates a premium versus the industry average of 1.30 times and is close to a 10-year high of 11.6 times. Finally, the price-sales ratio of 15 times is above the industry average of 3.73 times. The three ratios indicate the stock is relatively overvalued.
According to the chart below, the stock price has an interesting upward trend over a five-year period. If you had invested $10,000 five years ago, you could have $31,120 today. That is a 25.5% compound annual growth rate (CAGR).
Final comment
As outlined, the company has several growth drivers to contribute to profitability in the quarter and in a long-term view.
Hedge fund gurus Ken Fisher (Trades, Portfolio) and Spiros Segalas (Trades, Portfolio) added this stock to their portfolios in the second quarter, purchasing 15.6 million and 9.23 million shares respectively.
Disclosure: The author holds no position in any stocks mentioned.
