Visa Inc. (V), the $98 billion large-cap powerhouse, manages the largest global payment system in the world. This bodes well for the current Christmas/Hanukah shopping season and lasts throughout the year as millions of payment transactions take place. The company obtains its revenue from fees paid by clients based on payments volume, transactions processed, and other related services. Every time transactions are placed with one of the company's payment systems, Visa adds to its revenue.
One of the beauties of Visa's business is that the company doesn't take on credit risk. The credit risk is the responsibility of the financial institutions that issue Visa's cards/payment systems.
Another advantage for the company is the fact that it is the largest payment system among a few players in the industry. MasterCard (MA) and American Express (AXP) are the other large players which along with Visa, make up the payment system oligopoly. There is a huge barrier to entry for this business, which keeps a wide protective moat in place.
Forward P/E Ratio
Price to Book
5-Yr. Expected Annual Earnings
Visa's net revenue has increased 14% annually and earnings increased 29% annually with 2008 as the base year. During this time, Visa has blown away the performance of the S&P 500. I don't see any reason why Visa won't continue to outperform the market going forward. The company has an established business infrastructure in over 200 countries and territories.
In addition to credit cards, Visa's clients also offer debit, prepaid and cash access programs, digital, mobile, and eCommerce platforms for individuals, businesses, and the government. The company's payment brands include: Visa, Visa Electron, PLUS, and Interlink. Visa's new digital wallet service, V.me, competes with Paypal and simplifies the online checkout process by eliminating the need to enter credit card details when making purchases.
Although the trailing P/E ratio looks high at 46.53, the other valuation metrics show a fair valuation for the company. Visa's forward P/E ratio of 17.59, PEG ratio of 1.02, and price to book ratio 3.54, are more indicative of a fair valuation. The company's solid track record of beating earnings estimates and raising guidance has driven the stock higher the past few years. The stock has not become too rich in value and there haven't been any negative catalysts to misprice it on the downside.
Looking ahead, Visa is expected to achieve earnings per share of $1.78 for the current quarter and $7.25 for the fiscal year. The company is expected to grow earnings annually at 19.79% for the next five years. If the company continues to grow revenue and meet or exceed its earnings estimates, the current stock price of $146 should grow to be worth about $360 in five years.
Short-term positive catalysts for Visa include Black Friday, Cyber Monday, and the remainder of the shopping season. Longer-term catalysts include the success of eCommerce with Amazon (AMZN), and other online retailers. The growing use of credit cards and debit cards at brick and mortar retailers throughout the world are another positive catalyst for the company. Visa looks like another solid investment for the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.