Visa: Positioned for Strong International Growth

Visa, Inc. (V) has positioned itself to benefit from strong international growth opportunities in areas such as Asia and Europe. The company reported 38% growth rate in volumes from these markets, helping to temper the effect of the weakened domestic consumer environment.

Visa, Inc., through its subsidiaries, operates a network of retail electronic payments worldwide. The company was founded in 1958, has a market cap. of $58 billion and is headquartered in San Francisco, California.

A Solid Third-Quarter

Visa has only been traded publicly for a short while, but the company is pleasing its investors by producing impressive earnings, as seen by the company's third-quarter results, reported on July 30.

Revenue was up 17.5% from last year to $1.61 billion. Net income surged ahead to $422 million, up from $299 million a year ago while the company was still privately controlled. Excluding one-time charges, this produced earnings of 59 cents per share, ahead of analyst expectations of 48 cents per share.

This is the second time Visa has surprised and beaten analyst estimates in its last 2 quarters, having done so by an average of 8 cents, or 17%.

Strong International Presence

In spite of the economic slowdown, which dampens traditional spending habits and the use of credit, Visa reported strong results from its debit card segment.

Visa's CEO Joe Saunders said that, "Despite a challenging economic environment in the United States and a softening in traditional credit card spending, the strength of Visa's debit business drove solid growth in the region." Mr. Saunders indicated the company is experiencing strong expansion in a number of regions across the world, including Asia Pacific, Latin America and the Middle East.

Business volumes outside of the U.S., which account for 38% of Visa's business, grew at a rate of 31%.

Estimates and Valuations

After the good quarter, analysts raised their estimates, with the current-year estimate tacking on 16 cents and advancing to $2.15 per share.

At these levels, this is not a cheap stock, trading with a forward P/E multiple of 33X.

The Chart

Shares of Visa have traded mostly sideways for the last 3 months after topping off above $89 in early May. Take a look at the chart below.

 

Comments

[User 172125:]

Absolutely agree 100%. We have been covering Visa since the beginning and have the only non-profit blog devoted to Visa investors on the web:

www.visawinners.com

2008 Aug 05 11:29 AM

[Echo To All:]

how is europe benefiting Visa? From V's 10-Q...

"Visa Europe did not become a subsidiary of Visa Inc., but rather remained owned by its member financial institutions and entered into a set of contractual arrangements with Visa Inc... Our relationship with Visa Europe is governed by a framework agreement providing for exclusive, perpetual, non-transferable trademark and technology licenses within Visa Europe’s field of use and the provision of certain bilateral services."

2008 Aug 05 11:47 AM

[Financial C...:]

I have to disagree. 62% of Visa's business is in the U.S. With more banks failing each week, it's just a matter of time that new credit cards will be difficult to obtain and limits will be drastically reduced for cardholders. This reduced credit consumption will mean less transactions for Visa which will not bode well for the stock. I don't see much upside for the near term.

2008 Aug 05 05:19 PM

[mrbill for V:]

Zacks Research: Thanks for mentioning CEO Joseph Saunders, who has a better resume in Credit Card Services?. How about CEO Household Intl., Chairman CEO Fleet Boston,Master Card Director 1993-1997,Providian Fin. CEO,Washington Mutual Credit Card Services Director, ETC .

2008 Aug 05 05:25 PM

[User 172125:]

Alain-I would really suggest you do more research on Visa. I want to wish you all the best of luck on your V holdings (and if you don't hold V then your other holdings) - moving onto some new topics on some of my other blogs (which I won't bother posting here as they have nothing to do with V). It has been great following, investing, and trading V shares and options. Have now locked in my final positions and am moving onto some other companies and sectors.

Good Luck to all.....

Jon

2008 Aug 05 08:53 PM

[Ron w:]

I am a new investor and Visa was my first choice. However it has disappointed with a down trend and I am hopeful for a come back like a bull.

2008 Aug 06 12:01 AM

[Trader Man:]

Patience will be rewarded with Visa... MasterCard pales in comparison in both size and scope. I see Visa above 100 per share after the elections.

2008 Aug 06 01:17 PM

[Trader Man:]

Patience will be rewarded with Visa... MasterCard pales in comparison in both size and scope. I see Visa above 100 per share after the elections.

2008 Aug 06 01:17 PM

[Trader Man:]

Sorry for the double post.... Screen locked up..

2008 Aug 06 01:18 PM

[Urbane Gori...:]

If as has been reported in several blogs and articles lately that the US is in a recession and Europe and Asia are just beginning their recessions, and if credit cards are just becoming an issue here in the US, which is affecting V and MA (yes, I know they only handle the process, but fewer cards means fewer processes.... ) then doesn't it follow that we should see a decline eventually in European and Asian credit card issuances as well.

Not to say that V and MA will or won't survive, or even prosper, but I think that it's too easy to jump on the 'emerging markets will save our US companies' bandwagon. Clearly those countries suffer when we do.

jegan ;-)

2008 Aug 06 02:38 PM

[specdude:]

The electronic payment industry still has plenty of room to grow in this increasingly globalized and technically advanced market. Although the economy has slowed down, consumers still need to purchase goods and services and credit cards, debit cards, and pre-paid cards are gradually taking up much of those transactions from simple cash.

It's like beverages. People still need coffee, tea, or water -and soft drinks and beer, even in economic slowdowns. However, the difference is that coffee market consumption is more or less saturationed. Electronic payments industry isn't. It will take advantage of globalization more than any other industry out there.

Coca-Cola did a good job competing with commodities such as coffee and water as the preferred beverage. A good number of people would rather have a Coke than water on a hot day. Visa is also competing well against another valuable commodity: cash.

Word of caution: Visa is at $55 billion in market capitalization. It will probably not be a $100 company this year. Coca-Cola has a market value of $140 billion while ExxonMobil, not surprisingly, has the most of any business at $340 billion. It could take Visa several years to get to where Coca-Cola is.

MasterCard was greatly undervalued from the onset of its IPO. Visa wasn't.

2008 Aug 07 05:04 AM

[specdude:]

excuse me, I meant ExxonMobil has $440 bil. in market value and that Visa won't reach $100 billion this year.

2008 Aug 07 05:16 AM

[mrbill for V:]

Specdude, Nice points, however present market capitalization has nothing to do with Visa's future growth potential, and hopefully they won't go down the same road as KO and XOM with 2.311b and 5.194b shares out

2008 Aug 07 08:00 AM

[specdude:]

Well, its nice to compare the overall market value of some firms and the overall economy to know where your shares may be going. If some people had the idea that Visa was going to perform as well as MA, they may be disappointed considering the market valuation.

MA was at around $40/share at its IPO just over two years ago. Now, it's presently at around $240 from its previously high of over $300. That's a gain of around 500%. It's doubtful that Visa is going to see that kind of success in that same amount of time. Considering the company's market value is $55 billion, that would mean it have to be around $300 billion in market cap. by the spring of 2010.

That's very hard to see at this moment. Visa's market value will very likely never get that high in that short amount of time. Considering the fact that a firm like KO, that is well-managed and has a famous brand name with a repetitious business similiar to Visa is only around $140 billion in market cap, which is over 150% more than Visa currently is. And considering electronic payments and beverages will not likely to be as in demand as energy, neither industries will reach the kind of market value that ExxonMobil has achieved any time in the near future.

However, adjusted to steady inflation rate through economic growth and steady performance on part of Visa, the stock value of the company may reach ExxonMobil's present market value in 10-15 years.

On the other hand, compared to XO and even to KO, Visa is a low overhead business. Which is why it never went public for 50 years until it was hit by a storm of litigation. If this problem is worked out, Visa may achieve higher free cash flow in shorter time than any other of these companies because of its low cost business model, excellent growth potential, and a brand name in a field in which it enjoys a much wider moat than other firms in their respective industries.

2008 Aug 07 10:18 AM