Why The Buy Side Expects Visa To Beat The Street On Earnings

Jan.29.14 | About: Visa Inc. (V)

Visa Inc. (NYSE:V) is set to report FQ1 2014 earnings before the market opens on Thursday, January 30th. Visa is an American multinational financial services company known for its branded credit and debit cards. Expectations for growth in both profit and revenue are lofty this quarter, which could be troubled by the recent turbulence in emerging markets. While Visa still produces most of its revenue from the US, some of the company's expected growth is contingent on an expanding middle class in developing economies abroad. On the upside analysts are also expecting a large shift toward electronic payments in the near future, where new apps such as Square and Stripe are making it easier for consumers and businesses to make credit card payments over the internet. These new technologies could propel Visa and other credit companies forward and buy side analyst expectations for this quarter are high.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see All Estimates for Visa)

The current Wall Street consensus expectation is for Visa to report $2.16 EPS and $3.142B revenue while the current Estimize.com consensus from 30 Buy Side and Independent contributing analysts is $2.18 EPS and $3.153B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Visa to beat the Street on both profit and revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the two groups' forecasts.

Over the past six quarters the consensus from Estimize.com has been more accurate than Wall Street on profit and revenue five times each. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The distribution of estimates published by analysts on the Estimize.com platform range from $2.13 to $2.25 EPS and $3.082B to $3.225B in revenues. This quarter we're seeing a larger distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.

Throughout the quarter we have seen downward revisions from both Wall Street and Estimize. Wall Street lowered its EPS consensus from $2.18 to $2.16 and Estimize reduced its own from $2.22 to $2.18. On revenue Wall Street cut its forecast from $3.172B to $3.142B while Estimize expectations declined from $3.164B to $3.153B. Timeliness is correlated with accuracy and falling expectations going into an earnings report can be a bearish indicator.

The analyst with the highest estimate confidence rating this quarter is anmikyoso who projects $2.17 EPS and $3.145B in revenue. In the Winter 2014 season, anmikyoso is rated as the 33rd best analyst and is ranked 31st overall among over 3,650 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case anmikyoso is not as optimistic as the Estimize consensus but is still expecting Visa to beat Wall Street on the top and bottom line by a small margin.

Disclosure: None.