Visa (V) has a strong earnings track record and is making more moves in digital payments. Is Visa stock a buy right now?
The Dow Jones stock dominates U.S. credit card networks by transactions and cards in circulation. It has ample room to grow in digital payments, while pursuing new bets in fintech and cryptocurrencies.
Both Mastercard stock and PayPal stock are on the IBD Long-Term Leaders list.
Visa Earnings And Fundamentals
Visa and Mastercard, with China’s UnionPay, operate the world’s biggest electronic payment networks. Mastercard and Visa process card transactions but don’t issue credit cards.
Also, Visa and Mastercard have less exposure to interest-rate risk. Visa neither earns revenue from nor bears risk tied to the interest or fees paid by cardholders. Instead, Visa derives revenue from client services, data processing, cross-border transactions and value-added services, such as licensing fees. Its network spreads across more than 200 countries and regions.
On April 27, Visa reported fiscal second-quarter EPS of $1.38 on revenue of $5.73 billon, beating analyst views. Services revenue grew 8% to $2.8 billion, and data processing revenue rose 11% to $3. billion. But international transaction revenue dropped 19% to $1.5 billion.
Payments volume increased 11% on a constant-dollar basis, while total cross-border volume fell 11%. Total processed transactions grew 8% to 37.6 billion.
Over the past three years, Visa averaged 11% EPS growth and 6% sales growth, according to the IBD Stock Checkup tool. On key earnings and sales metrics, Visa stock earns an EPS Rating of 74 out of 99, and an SMR Rating of B. The EPS rating reflects a company’s health on fundamental earnings, and its SMR Rating measures sales growth, profit margins and return on equity.
To boost earnings, Visa and Mastercard twice tried to raise swipe fees for some types of credit-card purchases in 2020, but postponed implementation until April 2022 under pressure from trade groups and lawmakers. Swipe fees, also known as interchange fees, refer to the fee paid by merchants to card-issuing banks and credit-card companies for processing credit-card and debit-card transactions. Swipe fees are usually around 2% or purchases.
But Visa faces billion-pound payouts after Britain’s highest court found in June that both Visa and Mastercard curbed competition tied to fees for retailers.
Visa Stock Technical Analysis
The payments giant rose past a buy point of 228.33 on April. 23 from a flat base, according to MarketSmith chart analysis. The stock is in buy range, which tops out at 239.75. Its relative strength line is trending higher.
During the coronavirus crash, Visa stock declined 37%, which is much less than many other top stocks did in the bear market.
Shares earn an IBD Composite Rating of 63 out of a possible 99. The rating combines key fundamental and technical metrics in a single score. A 47 RS Rating is below the 80 or higher that investors in top growth stocks would want to see.
The C+ Accumulation/Distribution Rating reflects moderate selling by institutional investors in the past 13 weeks. Visa stock is highly traded, with 9.7 million shares exchanging hands on a typical day.
Half of outstanding shares are owned by mutual funds: 5,562 funds owned Visa stock as of March 2021, slightly up from 5,526 in December 2020.
Visa Eyes Cryptocurrencies, Fintech
On March 29, Visa said it would become the first major payments network to settle transactions in USD Coin, a stablecoin backed by the U.S. dollar, over Ethereum.
Visa is piloting the capability with Crypto.com, a Visa partner and one of the largest crypto platforms. It plans to offer the USDC settlement capability to additional partners later this year.
Working with Anchorage, the first federally chartered digital asset bank, Visa has launched a pilot that allows Crypto.com to send USD Coin to Visa to settle a portion of its obligations for the Crypto.com Visa card program.
On Dec. 2, Visa and cryptocurrency financial tech company BlockFi partnered to release the Bitcoin Rewards Credit Card to U.S. residents (excluding New York due to regulatory restrictions). The card will be issued in spring 2021 by Evolve Bank & Trust.
Visa recently also added crypto lender Cred, which is using Visa’s network to send interest payments to users’ bank accounts.
Meanwhile, Visa walked away Jan. 12 from its $5.3 billion bid to acquire Plaid, a fintech that connects a user’s bank accounts to apps such as Acorns and Venmo, two months after the Justice Department launched an antitrust lawsuit to block the purchase.
The lawsuit claimed Visa already has a monopoly in online debit card services, with a market share of more than 70%. Visa countered that the relevant industry is online payments, which includes services like Apple Pay and PayPal.
Visa said the decision to end the merger was mutual. CEO Al Kelly said in a statement the “protracted and complex litigation” would take “substantial time to fully resolve.” Plaid CEO Zach Perret said the company will now work with Visa as an investor.
According to its most recent annual report, Visa expects to move $17 trillion in consumer spending and $15 trillion-$20 trillion of business spending to cards and digital formats. Currently, much of that spending is still done in cash and checks.
As the vaccine rollout continues, Visa payments volume and processed transactions are improving faster than cross-border volumes. The term refers to transactions between shoppers and merchants from different countries.
Meanwhile, a positive trend amid the pandemic is the continued shift to e-commerce sales around the world.
“This works in our favor because Visa’s share of digital commerce, where cash is not an option, is approximately three times greater than the physical point of sale,” Visa said.
Digital payments — fueled by the rise of 5G networks — are a growth opportunity. Visa’s real-time push in payments technology has seen robust growth during the pandemic.
In June, Visa announced it’s partnering with Facebook (FB) on WhatsApp payments in Brazil. The messaging service has 120 million users in the largest country in South America.
Brazil’s central bank authorized payments via WhatsApp chat in July, after briefly suspending the newly launched service and ordering Visa and Mastercard to halt such payments. The central bank cited competitive and data privacy risks for its earlier decision.
Visa And Coronavirus
Even as the U.S. economy recovers and more people get vaccinated, Europe and other parts of the world lag the U.S. in Covid vaccination rates. And outbreaks in India and Brazil could be catalysts to setbacks elsewhere.
Meanwhile, the EU has said it will open its doors to American visitors who are fully vaccinated later this year. But overall international travel is not expected to return to normal levels before the end of 2021, if not later.
As a result, a renewed downturn in global growth and consumer spending would be a major risk to Visa stock, after the coronavirus delivered a demand shock.
The hardest-hit category for Visa includes travel, fuel, restaurants and entertainment. The segment comprises a third of Visa’s U.S. payments volume.
The food and drug stores category has returned to growth, along with home improvement, retail, automotive, health care, education and government. Visa’s also looking to capture opportunities from the pandemic.
One example is contactless payments. Even countries where tap-to-pay adoption used to be sluggish are picking up the pace amid the pandemic.
Visa had been trying to grow contactless adoption even before the coronavirus outbreak, hoping tap-to-pay would replace cash for small purchases. More than 500 cities around the world have adopted contactless or tap-to-pay fare payments, powered by Visa, as the recovery in public transit begins.
Rival Payment Stocks To Visa
Highly rated companies in IBD’s payment processing group include Square (SQ) and PayPal. Visa’s other established rivals include American Express and Discover.
Paysign (PAYS) is an emerging player, focused on health care and online staffing. PagSeguro Digital (PAGS) and Qiwi (QIWI) are other names to watch. Brazil’s StoneCo (STNE), backed by Warren Buffett, is also one to watch.
Investing legend Buffett also has tiny stakes in Visa stock and Mastercard stock and a huge position in American Express stock.
Is Visa Stock A Buy?
The Dow Jones card giant has a commanding share in the fast-growing digital payments market. Visa earnings confront coronavirus headwinds in the near term. But the longer-term outlook remains solid, and in Q1 payment volumes and transaction topped pre-pandemic levels.
Meanwhile, Visa is also a top payments stock in an industry group that is acting well.
To be sure, competition in digital payments is intense. And global economic and legal/regulatory risks are ever-present, as the recent U.K. court ruling and DOJ antitrust lawsuit show.
Bottom line: Visa stock is a buy as shares are still in buy range. The Dow Jones card giant compares favorably with many top-rated large-cap stocks to buy or watch.
YOU MAY ALSO LIKE:
Business News Governmental News Finance News