Visa (V) announced earnings after the bell on February 6th, and despite beating both revenue and earnings estimates and announcing new share repurchases, the company has followed the broader market and traded down 2% today.
I believe the reason for this is two-fold: while the broader market has sold off, Visa has sold off more because the market was especially exuberant and expected a Visa earnings beat going into earnings. This was illustrated by the closing price of $160, which Visa has closed at or above only 7 times in total, with the other 6 of those times all occurring successively between January 9th and January 16th when the markets were strongly rallying.
In my last article on Visa, I eyed Visa with the question: "is the stock pricey"? Despite lofty valuation metrics, however, I deemed the stock a "hold" for current investors due to strong stock price appreciation and significant underlying business momentum. The conference call, in my opinion, confirmed this "hold" recommendation.
1st Quarter 2013 Financial Notes:
Operating Revenues (in Billions)
Earnings (Per Share)
Earnings (Per Share, Adjusted)
Both operating revenues and earnings per share beat. Analysts seem happy about the upside in operating revenues, which is a huge positive for the company and shows that the company is continuing to grow. Earnings per share, meanwhile, were inflated due to favorable guidance regarding tax apportionment rules. Management indicated that this guidance resulted in a positive $.11 per share, thus earnings per share was actually $1.82. Regardless, earnings beat both the Bloomberg and whisper number estimates.
(all numbers in billions)
Revenues (in billions)
Operating Income Before Depreciation (in billions)
Earnings (per share)
Compared to the prior quarter, revenues increased 12% while earnings per share increased 22%. It is clear that Visa can continue to grow its revenues while simultaneously growing its margins to increase earnings per share in the high teens to low twenties. For this quarter, Visa illustrated why it has earned its lofty valuations.
1st Quarter 2013 Conference Call Notes:
Charlie Scharf noted in the conference call multiple reasons to be bullish on the company, the following of which are what I would highlight:
First, he noted the resilience of the business model; Visa has proven that it can deliver results through economic cycles. This is sensible, as people will continue to use their cards through economic cycles. The main concern through down cycles is the volume of transactions. But ultimately, Visa's service will be used throughout both up and down cycles. It is interesting to note that Visa considers its main competitor to be cash and checks. Visa sees an ability to 'grow the market' by ensuring that consumers can readily use their service by either using "plastic" or mobile payments everywhere instead of cash.
Secondly, there is a clear desire and need for Visa's products around the world. A secure, established payments and transactions service helps to grow economies and wealth across all levels. Meanwhile, 2.5 billion people still do not have access to payments and transactions services that many citizens in the United States take for granted. Clearly, there is large room for international growth if Visa can establish itself in lesser developed areas.
Finally, Visa's network, and the security of its network, is very strong. In an age where the world of cyber criminals is growing, Visa's services must be secure to prevent theft and fraud. Moving forward, Visa's investments in its network and security will prove to be invaluable.
When thinking about market share, Visa is focusing on growing the market by stealing it from cash. Visa must ensure that when consumers and merchants transact, they continue to use Visa's services rather than cash. To this end, Visa will focus on extending the core network by complementing it with secure online and mobile payments. Here, it will be essential for Visa to maintain strong relations with its customers and ensuring that the integrity of its network is strong and respected.
When thinking about capital (CASH) allocation and deployment, Visa's priorities remain to first reinvest in the business, then eye potential acquisitions, and finally return cash to shareholders. Regarding the third point, the firm is mindful of being shareholder friendly and announced that it is planning an "investor's day". More importantly, Visa also announced a new share repurchase authorization, allowing the company to repurchase $2.9 billion in shares. This should support the stock price moving forward.
It is apparent that there are very high expectations for the company, and this is reflected through the very high multiple valuation metrics that Visa currently trades at. However, looking through the conference call reveals that the expectations are attainable and that should Visa continue strong, organic growth in a "flexible" manner, as Charlie Scharf, CEO, referenced during the call, then Visa's stock can continue to perform well.
I believe that the investment thesis surrounding Visa and its business still holds true, and gives reason for investors to continue to hold the stock. Importantly, the industry itself is a sound exposure as I believe the move towards "electronification" of payments will continue in both developed and lesser developed areas. Beyond this, Visa's business model is sound and growing significantly. I believe that Visa is well positioned within its industry to sustain growth in the long-term, and that it's established network and security give it a competitive edge. Given the conference call and the updates contained within it, I believe the stock is still a "hold".
For more information, please visit Visa's investor's web page here.
Disclosure: I am long V.