Visa (V) is a credit card services provider. It provides the largest payment system in the world. I anticipate Visa to continue trending higher, and that investors should buy the stock on pull backs.
Visa earns a small percentage on the transactional value of every debit or credit card transaction that takes places through their network. Visa avoids liability from loan losses; rather it is the responsibility of the financial institutions who issue Visa's cards that take on the risk of default from lending cash. Visa plays an intermediary role, while taking on very little risk.
Businesses that are a part of the Visa network have to pay a small fee in order to be a part of the network. Every time a consumer spends money through their Visa card, Visa receives a percentage of the transaction from the business. Businesses pay Visa directly. Businesses benefit through a reduction in fraud, and higher consumption. Thefts from employees who steal money from cash registers are averted through credit or debit card transactions. Consumers also benefit from the convenience of being able to draw money directly from their bank accounts. Visa plays a useful role in the global market.
Visa continues to expand internationally adding further to their revenue and net income growth. This growth is what is keeping investors onboard.
Visa has been on a continuous up-trend. The stock is likely to pull-back to the bottom of the channel and find support at 144.00 per share. The stock should be bought on minor pull-backs.
Source: Chart from freestockchart.com
Visa has been trading within the channel since June, and I don't anticipate this to change anytime soon. That being the case, slow and steady share appreciation seems to be the trend, and is likely to continue through 2013.
Notable support is 144, 140, and 136 per share.
Notable resistance is 175, 205, and 215 per share.
I anticipate the stock to appreciate from current levels (146.82).
Analysts on a consensus basis have strong expectations for the company going forward.
Past 5 Years (per annum)
Next 5 Years (per annum)
Price/Earnings (avg. for comparison categories)
PEG Ratio (avg. for comparison categories)
Source: Table and data from yahoo finance
The company shows reasonable growth as analysts on a consensus basis have a 5-year average growth rate forecast of 19.23% (based on the above table).
Source: Table and data from yahoo finance
The average surprise percentage is 4.7% above analyst forecast earnings over the past four quarters (based on the above table).
Forecast and History
The EPS figure shows that throughout the 2007-2011 period earnings growth has been exceptional as the company was unaffected by the great recession. Once the United States economy exited the recession in 2010-2011 the company earnings improved albeit at a slower rate.
Source: Table created by Alex Cho, data from shareholder annual report
By observing the chart we can conclude that the business is non-cyclical. Therefore the largest risk factor for Visa is anti-trust related issues and competition from competitors like: Master Card (MA), American Express (AXP), PayPal (EBAY), and Discover Financial Services (DFS).
Source: Forecast and table by Alex Cho
By 2016 I anticipate the company to generate $15.65 in earnings per share. This is because of earnings growth, improving global outlook, and the continued success of their product offerings. The forecast is proprietary, and below is a non-linear chart indicating the price of the stock over the next 5-years.
Source: Forecast and chart by Alex Cho
V currently trades at 146.82. I am an optimist. I have a price forecast of $145.00 for 2012, being that there are only 15-days before the end of 2012; the stock has already exceeded the price forecast by a dollar. This means we should move to the long-run, and focus on 2012-2013. In 1st quarter 2013, Visa will announce earnings for 4th quarter 2012. Previous price history indicates that Visa will gradually appreciate throughout the year, and their recent streak of surprising to the upside has slowed, therefore it seems more prudent to have a buy and hold mentality.
Over the next twelve months, the stock is likely to appreciate from $146.82 to $175.77 per share. This implies 20% upside from current levels. The technical analysis indicates a strong up-trend in the stock, with no signs of abating anytime soon.
Investors should buy Visa at $146.82 and sell at $175.77 to pocket short-term gains.
The company is an exceptional investment. I anticipate V to deliver upon the price and earnings forecast despite the risk factors. Visa's primary upside catalyst is international growth, and margin improvement. I anticipate the company to deliver upon my forecasted price target of $379.52 by 2017. This implies a return of 158% by 2017. This rate of return is exceptional, considering Visa has a market capitalization of $119 Billion. The large market capitalization allows for larger institutions to sell the stock without affecting liquidity, making it an investment of choice.
Visa is a great investment opportunity over the long-term. The stock is not trading at a valuation that deviates too far from the forecast for 2012, and is unlikely to trade at valuations higher than the 2013 forecast. This implies investors should look for longer-term appreciation rather than the typical buy and dump strategy short-term traders have. The conclusion remains simple: buy Visa.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.