North America

Earnings Preview: Visa Q1 2017 (V)

By: Craig Bowles

Overview

Visa, Inc. (V) is slated to report 1Q 2017 earnings before the bell on Thursday, February 2nd. The earnings release is expected at approximately 4:05 p.m. ET with a conference call to follow at 5:00 p.m. that is webcast through Visa Investor Relations. A member of the Dow Jones Industrial Average, Visa has significant market influence and the potential to impact the broader market gauges.

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Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): The current Street estimate is $0.78 (range $0.75 to $0.83). (Source: Yahoo! Finance) Consensus was $0.78 three months ago, as well. (If an Adjusted or Non-GAAP EPS is not available, the GAAP EPS will be the comparable number.)
  • Revenues: Analysts expect $4.29 bln (range $4.10 bln to $4.40 bln).
  • In terms of guidance, the company sees 2017 Adjusted EPS growth in the mid-teens and revenue growth of 16% to 18%.
  • Price/Earnings of 33.8 compares to the 5-yr average of 32.4; Price/Book of 7.2 compares to the 5-yr average 5.0; Price/Revenue of 13.4 compares to the 5-yr average of 11.5. Dividend yield of 0.7% compares to the 5-yr average of 0.7%.
  • Analysts remain bullish on Visa with 29 Buy, 2 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 925,008 shares during the last three months and 1,060,317 shares in the past year. (source: NASDAQ.com) The company approved another $5 bln buyback in July 2016, so similar to what the previous three years announced in Q4.
  • Delinquency rates on credit card loans for all commercial banks got down to 2.11% (historic lows) in early 2015 and have moved up only slowly since then. (source: stlouisfed.org)
  • Visa is compared to other credit card and financial companies, with quarterly results possibly impacting MasterCard (MA), American Express (AXP), Discover Financial (DFS), Citigroup (C), and JP Morgan Chase (JPM).
  • Visa shares have a 1-day average price change on earnings of 2.20%. Options imply a 3.22% move off earnings.

Recent News

  • 01/20: Wedbush upgraded Visa to Outperform from Neutral citing a host of growth/scale catalysts, including the displacement of cash and checks by electronic payments, incremental revenue opportunities from European regulations and hyper-growth in mobile payments, according to a post on MarketWatch.com.
  • 01/17: Wells Fargo Securities is confident on Visa U.S. volume estimates for the upcoming quarter after credit and debit card payment volume growth accelerated for both JPMorgan and Bank of America, according to a post on Barron’s.com.
  • 01/06: Visa reached an agreement with Wal-Mart Stores, Inc. which would allow acceptance of Visa credit cards as a form of payment in all Canadian Wal-Mart stores, according to a post on Zack’s.com.
  • 12/05: Guggenheim upgraded Visa to Buy from Neutral citing a favorable outlook for the company’s earnings growth and risk/reward, according to a post on Barron’s.com.
  • 11/25: Credit Suisse believes Visa may cede modest market share in U.S. debit to Mastercard and regional debit networks. Visa has “modified and clarified” debit-transaction routing rules in connection with a recent Federal Reserve post, according to a post on Barron’s.com.

Technical Review

Visa’s stock rose 4.75x since 2010 to November 2015’s $81.01 and is now trying for a fourth time to push above the low $80s. Point and figure technicians have a tentative bullish price objective of $100. (Chart courtesy of StockCharts.com)

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Summary

Visa’s CEO Charles Scharf is leaving and will be replaced by Alfred F. Kelly Jr., a former president of American Express. The stock is still close to that $81 area and credit card delinquencies are still low historically despite trending higher off last year’s all-time low. Analysts seem to add a bullish rating each quarter on Visa’s stock. Insider trading had been inactive, so the recent sharp rise in selling is somewhat worrisome. Visa has beaten estimates by an average of 3c the past four quarters. Estimize consensus for an Adjusted EPS of $0.79 on revenue of $4.302 bln compares to analyst consensus of $0.78 on revenue of $4.29 bln.

 

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