Visa Continues To Deliver Top Notch Results

| About: Visa Inc. (V)

Wednesday afternoon, payment processing giant Visa (NYSE:V) reported strong fourth quarter earnings and provided a bullish outlook for fiscal year 2013. Excluding the impact of one-time litigation charges, the firm earned a better-than-expected $1.54 per share, growth of 21% year-over-year. Total revenue surged 15% during the quarter to $2.7 billion, which also exceeded consensus expectations. New CEO Charlie Scharf takes the helm today while Joseph Saunders transitions to chairman and then eventually to retirement. For a read on why we think Visa is worth close to $150 per share, please click here.

Saunders leaves Scharf, the former head of retail financial services at JP Morgan Chase (NYSE:JPM), with lofty forward expectations. The firm's guidance calls for low double digits revenue growth, 60% operating margins, high-teens earnings per share growth, and $5 billion in free cash flow during fiscal year 2013. Scharf was most recently a partner at JP Morgan's private equity arm, OneEquity Partners, and we haves no reason to believe that he won't succeed in his new role. Visa has such a powerful network effect and business model that we think it will be fairly easy for Scharf to avoid any major hiccups.

CyberSource payment volumes continue to surge, growing 25% year-over-year during the quarter as the online payment bull market continues. Credit card volumes grew 9.2% in the US and 10.2% throughout the rest of the word, resulting in aggregate credit payments volume growth of 9.8% in constant currencies. Payments volume in debit cards continued to surge internationally, increasing 19.6% year-over-year on a constant currencies basis.

The only blemish during the fourth quarter was US debit card volume, which remained weak, with payment volumes tumbling 6% during the quarter. While the company secured long-term contracts with its 15 largest US issuers, the capped rates from the Durbin amendment (Dodd-Frank provision) has permanently impaired debit revenue. However, the company and several debit card issuers continue to incentivize credit card use, which will help mitigate the impact.

Regardless, Visa continues to be one of the most shareholder-friendly companies in our coverage universe (click here). The board of directors recently authorized an additional $1.5 billion in share buybacks, and it expects to remain committed to shrinking its float. Earlier this month, the company increased its quarterly dividend by 50% to $0.33 per share, a dividend yield of 0.9%. Though the yield looks paltry, the significant increase in share price has far exceeded any returns dividends could provide.

Overall, we thought the quarter was fantastic, and it strengthens our conviction in the payment processor. We continue to hold shares of Visa in the portfolio of our Best Ideas Newsletter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Additional disclosure: V is included in the portfolio of our Best Ideas Newsletter.

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Tagged: , Credit Services, Earnings
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