North America

Earnings Preview: Visa Q3 2017 (V)

By: Craig Bowles

Overview

Visa, Inc. (V) is slated to report 3Q 2017 earnings before the bell on Thursday, July 20th. 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.

Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): The current Street estimate is $0.81 (range $0.78 to $0.84). (Source: Yahoo! Finance) Consensus was $0.80 three months ago. (If an Adjusted or Non-GAAP EPS is not available, the GAAP EPS will be the comparable number.)
  • Revenues: Analysts expect an 20.20% y/y increase to $4.36 bln (range $4.23 bln to $4.49 bln).
  • In terms of guidance, the company sees 2017 Adjusted EPS growth at high end of the mid-teens and revenue growth now at the high end of their 16% to 18%.
  • Price/Earnings of 47.7 compares to the 5-yr average of 32.4; Price/Book of 8.8 compares to the 5-yr average 5.0; Price/Revenue of 13.7 compares to the 5-yr average of 11.5; Price/Cash Flow of 40.8 compares to the 5-yr average of 26.5. Dividend yield of 0.7% compares to the 5-yr average of 0.7%.
  • Analysts remain bullish on Visa with 27 Buy, 3 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 43,394 shares during the last three months and 1,150,551 shares in the past year. (source: NASDAQ.com) The company approved another $5 bln buyback in in April 2017 similar to July 2016, and also similar to what the previous three years announced in Q4.
  • Delinquency rates on credit card loans for all commercial banks got down to 2.12% (historic lows) in early 2015 and have moved up 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 2.67%. Options imply a 2.90% move off earnings.

Recent News

  • 07/10: Visa is poised to benefit as consumers in Japan and Europe gravitate toward plastic. More than 80% of global transactions still involve cash, according to a post on Barron’s.com.
  • 06/20: Wedbush maintained an Outperform rating on Visa while noting a host of growth/scale catalysts, including the disintermediation of cash/checks by electronic payments and their networks’ increased dominance in the payments eco-system. Also, there’s an outlook for increased shareholder returns, according to a post on Barron’s.com.
  • 06/19: Sandler O’Neill rates Visa a Hold due being too expensive for the litigation risk, according to a post on Barron’s.com.
  • 05/31 Bloomberg reported a 2.2M block of Visa stock to be offered at $95.18/share, according to a post on StreetInsider.com.
  • 04/21: Visa and Mastercard executives’ dream of a cash-less society is close to a reality in India where they’ve phased out 86% of its cash and demanded that residents deposit their money in banks. 78% of India transactions were made in cash in 2015 compared to 20% in the U.S., according to a post on Barron’s.com.

Technical Review

Visa’s stock is trading at another new all-time high of $96.97 which is only slightly above the level in June where Bloomberg reported some large blocks of stock would be offered. Below the current $94 balance area of support has $89 and then the low $80s. (Chart courtesy of StockCharts.com)

Summary

Integration with Visa Europe appears to be going well. The analyst optimism for Visa is tied to a global push toward a cashless society which some may find a little unsettling. Card delinquencies are still low historically despite trending since early 2015. As with a number of companies, valuations appear stretched. Insider selling eased after a brief spike three months ago. Visa has beaten estimates by an average of 6c the past four quarters. Estimize consensus for an Adjusted EPS of $0.85 on revenue of $4.432 bln compares to analyst consensus of $0.81 on revenue of $4.36 bln.

 

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