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Shubham Jaipuria
Shubham Jaipuria
Articles (45) 

Visa Has Upside

The company has been gaining traction

October 11, 2018 | About:

Visa Inc. (NYSE:V), a payments technology company connecting consumers, merchants and financial institutions through electronic payments, has been on investors’ radars recently for a number of reasons. Ranging from overall economy-wide factors to micro stock-level factors, Visa has gained decent traction among investors.

The U.S. economy has been registering strong gross domestic product growth, with the economy expanding 4.2% in the second quarter. Moreover, unemployment is at a record low, dropping to 3.7% in September. The strong economic position will help increase wages and disposable income.

With higher disposable income, consumers will spend more, which will lead to higher transaction volumes for Visa. With the holiday season upon us, spending expectations from American consumers is at its peak.

The Street's sentiment is also quite bullish. BMO Capital Markets assigned an $187 price target with an outperform rating, saying they are bullish on the overall payment space. As the world economy continues to grow, the demand for credit card processing is also expected to increase.

From an earnings standpoint, Visa has been keeping investors happy. In the most recent quarterly report, Visa posted earnings that beat expectations by 11 cents at $1.20, compared to 86 cents a year ago. Revenue increased 14.7% to $5.24 billion, beating expectations by $150 million.

“We are very pleased with our third-quarter results," CEO Alfred F. Kelly Jr. said. "Revenue growth was 15% as all of our key economic drivers remained strong. The healthy global economic fundamentals we've seen in the past few quarters have largely continued. Payments volume growth on a constant dollar basis of 11% accelerated modestly versus the prior quarter fueled by faster growth in almost every region and higher credit growth.”

Moreover, Visa has plenty of cash in its reserves, which it uses to pay dividends and buy back stock every year. The company returned approximately $2.2 billion to shareholders through buybacks and dividends in the previous quarter. While the dividend yield is relatively low at 0.61%, the stock seems to have immense long-term potential.

Visa has a three-year revenue growth rate of 15% compared with the industry median of 6.6%. The earnings before interest, taxes, depreciation and amortization growth rate was 18.2%, above the industry median of 7.1%. Moreover, the company’s operating margin of 63.7% massively beats the industry median of 19.77%.

Although the stock is trading with a higher price-earnings ratio than the industry, the immense growth prospects make it a compelling play. Certain industry reports by Statista peg the number of Visa cards in circulation at over 750 million worldwide, as compared to nearly 240 million PayPal (NASDAQ:PYPL) accounts in the first quarter of the year. Moreover, by using the opportunity to tap into other markets and expand its presence by replicating its model, Visa can generate massive success.

All told, Visa can definitely leverage the increasing demand for digital currency as disposable income grows for consumers around the globe. Moreover, with increasing popularity of smartphone banking and blockchain commerce, Visa is here to stay.

Disclosure: I do not own any of the stocks mentioned.

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