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Summary

  • The stock is fairly valued on 2015 earnings estimates and earnings growth potential.
  • The dividend is way too small to hide out in the name for safety.
  • On the bright side ROA and ROE have increased in the past six months.

The last time I wrote about Visa Inc. (NYSE:V) I stated, "I'm not going to be buying right now." After writing the article the stock increased 5.05% versus the 5.94% gain the S&P 500 (NYSEARCA:SPY) posted. Visa is a global payments and technology company that connects consumers, financial institutions and merchants.

On April 24, 2014, the company reported fiscal second quarter earnings of $2.52 per share, which beat the consensus analyst estimates by $0.34. In the past year the company's stock is up 18.48% excluding dividends (up 19.22% including dividends) and is beating the S&P 500, which has gained 15.76% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my growth portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 25.3, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the one-year forward-looking P/E ratio of 20.56 is currently fairly priced for the future in terms of the right here, right now. The one-year PEG ratio (1.61), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a one-year horizon), tells me that the company is fairly priced based on a one-year EPS growth rate of 15.7%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 15.7%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 17.1%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

27Nov13

203.52

37.67

19.43

10.47

157

2.18

17.28

28May14

213.80

25.30

20.56

10.40

156

1.61

15.70

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 0.75% with a payout ratio of 19% of trailing 12-month earnings while sporting return on assets, equity and investment values of 14.9%, 20% and 18.4%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 0.75% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past seven years at a five-year dividend growth rate of 45.9%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

27Nov13

0.79

30

14.0

18.4

18.5

28May14

0.75

19

14.9

20.0

18.4

Technicals

(click to enlarge)

Looking first at the relative strength index chart (RSI) at the top, I see the stock in middle ground territory with upward trajectory since 11Apr14 and a value of 57.91. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is above the red line with the divergence bars flattening in height, indicating bullish momentum may be getting tired. As for the stock price itself ($213.80), I'm looking at $228.09 to act as resistance and the 50-day simple moving average (currently $209.79) to act as support for a risk/reward ratio which plays out to be -1.88% to 6.68%.

Recent News

  1. The company has decided that it will remain in Russia despite a new law that is increasing the company's security depsits to 25% of their average daily turnover. The new law was more than likely passed as a form of retaliation for the proposed sanctions on Russia from the U.S.
  2. A month ago the company reported fiscal second quarter earnings which beat expectations but missed on the top line. Earnings were $2.52 per share on revenue of $3.16 billion versus expectations of $2.18 per share on revenue of $3.19 billion.
  3. Though the company beat earnings, the outlook was horrible. The company cut the top end of its revenue growth guidance to 11% from a 10%-13% range previously.

Conclusion

The company used to be a favorite among hedge fund managers due to its growth potential, but now it is one of the 50 top shorts according to Goldman Sachs. Fundamentally, the company is fairly priced based on next year's earnings estimate and on future growth potential while still expected to grow earnings at a high clip for the near and long-term perspective. Financially, there may as well be no dividend to hide out in because it is miniscule but the financial efficiency ratios have increased from six months ago. On a technical basis, there appears to be a bull run taking place in the stock, but I believe it's nearly done. Due to the fair valuation on next year's earnings estimates, tiny dividend, and the tiring technicals, I'm not going to be pulling the trigger right now but will take another look on dips.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Is It Time To Buy Visa Right Now?