North America

Earnings Preview: Visa Q4 2017 (V)

By: Craig Bowles

Overview

Visa, Inc. (V) is slated to report 4Q 2017 earnings before the bell on Wednesday, October 25th. The earnings release is expected at approximately 6:00 a.m. ET with a conference call to follow at 8:00 a.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 $0.85 (range $0.81 to $0.89). (Source: Yahoo! Finance) Consensus was $0.85 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 an 8.7% y/y increase to $4.63 bln (range $4.54 bln to $4.73 bln).
  • In terms of guidance, the company sees 2017 Adjusted EPS growth at 20% and revenue growth of 20%.
  • Price/Earnings of 40.0 compares to the 5-yr average of 32.4; Price/Book of 9.3 compares to the 5-yr average 5.0; Price/Revenue of 14.6 compares to the 5-yr average of 11.5; Price/Cash Flow of 29.2 compares to the 5-yr average of 26.5. Dividend yield of 0.6% compares to the 5-yr average of 0.7%.
  • Analysts remain bullish on Visa with 28 (27 last qtr) Buy, 2 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 42,274 shares during the last three months and 1,191,941 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 2.03%. Options imply a 2.15% move off earnings.

Recent News

  • 10/10: Wells Fargo upgraded Visa to Outperform from Market Perform citing the sustainability of earnings growth drive by secular trends and pricing power. Currency markets are a tailwind as USD index weakens which translates into improved volumes for transactions, according to a post on StreetInsider.com.
  • 10/03: Buckingham Research initiated coverage of both Visa and Mastercard with Buy ratings as both are well positioned for further growth given their insulation against payments upstarts and their strong pricing leverage, according to a post on Barron’s.com.
  • 09/20 BMO Capital Markets reiterated Outperform ratings on Visa and MasterCard citing the $180 trillion total addressable market of new payment flows, including business to business, person to person, and business to consumer, according to a post on Barron’s.com.
  • 09/18: The 2017 Dow Jones Sustainability North America Index (DJSI) named Visa on its list.
  • 08/17: A recent report from the New York Fed indicated that Total U.S. household debt hit a new record of $12.8 trillion in the second quarter and that credit card debt is at its highest level since 2009. During the quarter, 6.2% of credit card balances became 30-days delinquent, up from 5.1% a year before, according to a post on Barron’s.com.
  • 07/25: Bernstein sees several reasons why Amazon could become a payments disruptor, including its large user base, strong cloud-technology operations, and “sheer size,” accounting for perhaps 2% to 3% of all global card payment volumes. “Amazon poses a real, albeit long-term, risk to Visa, Mastercard, and PayPal,” according to a post on Barron’s.com.

Summary

Visa stock has risen close to 40% in 2017, so the weaker dollar does appear to be viewed as a positive by investors. 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 remained similar to last quarter. Visa has beaten estimates by an average of 6c the past four quarters. Estimize consensus for an Adjusted EPS of $0.88 on revenue of $4.646 bln compares to analyst consensus of $0.85 on revenue of $4.63 bln.

 

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