Visa Hikes Quarterly Dividend, Names New CEO

Oct.25.12 | About: Visa Inc. (V)

Visa (NYSE:V) announced a 50 percent increase in its quarterly dividend from $0.22 to $0.33 per share. For the fourth straight year the firm is significantly increasing the quarterly dividend. The dividend will be paid to shareholders of record of the company's class A, B, and C common stock.

The Board of Directors elected Charles W. Scharf, formerly Chief Executive Officer of Retail Financial Services for JPMorgan Chase & Co., to succeed Joesph W. Saunders as Visa's Chief Executive Officer, effective November 1, 2012. Mr. Scharf is a former director of Visa Inc.. Scharf was also appointed to serve on the Board of Directors.

Scharf has a record of profitably growing businesses, and managing complex, large-scale global enterprises. Scharf also served as CFO for Citi and earned an MBA from New York University.

Julio Quinteros, vice president at Goldman Sachs' technology group, believes the firm will have low double-digit net revenue growth, a 60 percent operating margin, and earnings per share growth of around 20 percent.

In the most recent quarter Visa grew its revenue by 11 percent year-over-year. MasterCard (NYSE:MA) and Discover (NYSE:DFS) grew revenue by 9 percent, and American Express (NYSE:AXP) by 1 percent.

Financial Performance

Visa hasn't reported third quarter results. In the second quarter, revenue declined from $2.58 billion to $2.57 billion and increased from $2.32 billion in the year-ago quarter. Visa's revenue increased substantial since 2007. Revenue in 2007 was $3.6 billion. Revenue in 2011 was $9.2 billion. Revenue this year should be over $10 billion.

Net income increased to $3.65 billion in 2011 from $804 million in 2008. The firm reported a loss of $1.84 billion in the second quarter because of a $4 billion unusual expense. Excluding the usual expense, Visa's net income is trending higher. The net profit margin in 2011 was just less that 40 percent.

Financial Position

At the end of the second quarter Visa reported $2.3 billion of cash. Goodwill and intangibles make up a substantial portion of the firm's assets. Total assets were $38.74 billion and goodwill and intangibles were about $23 billion.

Visa didn't have any debt, but the firm did have about $9 billion in accrued expenses and deferred taxes. Total equity has been flat over the past year.


The short-term multiplier model valuations suggests the firm is overvalued. The absolute values of the multiplier model valuations also suggests the firm is overvalued. The price-sales ratio is 10.99 and the price-earnings ratio is 135.14.


I don't know all of the details about Saunders leaving as CEO, but it was an excellent time for him to leave. Visa is overvalued and the share price should decline substantially at some point. Scharf is stepping into a difficult position because it will be very difficult for him to create shareholder value with the valuations at these levels. Short sell common equity shares of Visa.

Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.

Disclosure: I am short SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.