Visa Inc (NYSE:V) is coming out with their fourth quarter and fiscal year of 2016 results today (after-market hours on October 24th, 2016). The consensus EPS forecast for the September quarter of 2016 is $0.73, based on NASDAQ. Visa stock generated a returns of over 3.7% in the last three months (from July 21st to October 21st; Source: Google finance) since its third quarter results.
Visa’s stock performance have been volatile this month and slightly fell over 0.2% (from September 26th to October 21st; Source: Google finance). This decline is mainly due to announcement from the group’s Chief Executive Officer, Charles Scharf regarding his resignation. He cited that he is leaving the firm due to “family commitments”, puzzling everyone as Visa has been facing a slew of legal allegations against them. Alfred Kelly, a Visa board member and former AmEx president is replacing Charles position from 1st December, 2016. This sudden management change is raising concerns among Visa’s investor’s making them skeptical over the group’s performance ahead. But the group was able to slightly deviate these concerns by announcing a 18% rise in dividends, to 16.5 cents a Class A share, as compared to 14 cents.
Why Visa’s Europe performance is important in today’s results?
In today’s results, investors would be mainly eyeing the performance of their Europe’s acquisition, Visa Europe, to understand how the group is positioning their business to withstand the impact of Brexit. The group acquired Visa Europe for a total value of up to €21.2 billion, which would add $6.8 trillion worth of global payments in their portfolio. Many European clients use Visa Inc.’s solutions while the region still promises opportunity, as over 37%, or USD $3.3 trillion, of personal consumption expenditure transactions are expected to be done via cash and check. With the region being an early adopter of mobile payments, Visa is aggressively seeking to penetrate the market by launching new mobile payment partnerships, platforms and products. Visa guided that they would include Visa Europe performance during the fourth quarter and consequently in the fiscal year of 2016 performance. The group forecasted Visa Group to add an additional 3 to 4 percentage points of growth leading to a fiscal year of 2016 revenue growth of 7% to 8% on a constant currency basis. But the group reiterated their “low double digit” adjusted EPS growth and about $7 billion in annual free cash flow for the fiscal year of 2016. In addition, Visa anticipates their fourth quarter results to improve modestly, similar to the first-half of the year results.
(Source: Company Presentation)
Visa has been either meeting or exceeding the results expectations since the last five quarters based on Reuters data. For the third quarter of 2016, the group delivered a 3% growth in the net operating revenue to $3.6 billion. This performance is mainly on the back of growth in processed transactions and payments volume. However, the top line growth was even better excluding the effects of foreign exchange rate fluctuations, wherein the revenue has increased 6%. But, the adjusted earnings per share declined 7% to $0.69 due to the share buybacks. Management reported that their $5.5 billion buy back of common stock during this year-to-date indicates their confidence on their business and accordingly enhanced their buyback authorization by $5.0 billion to $7.3 billion.
(Source: Reuters)
Visa’s ongoing efforts to strengthen its portfolio
Recently, the group launched a new Visa B2B Connect platform based on the Chain’s Blockchain Technology for offering global business-to-business payments mainly for financial institutions. This product is expected to enhance international B2B payments by offering clear costs, improving delivery time and visibility into the transaction process as well as decrease investments by banks and clients. Visa B2B Connect is expected to pilot in 2017.
The group even partnered with FIS and Jack Henry & Associates, Inc. for person-to-person (P2P) payments, and Stripe, Hyperwallet and Ingo Money to deliver a faster business and government disbursements. Moreover, Visa Direct’s innovative platform is gaining demand from the payment processors, financial institutions and technology companies. Meanwhile, Visa chip transactions has exceeded half a billion during August 2016, representing more than 1,000% annual increase. V has launched Visa Advertising Solutions, along with Oracle partnership, which is a new product range for merchants to understand how their digital advertising efforts would have an impact on their targeted consumer purchase decisions online and in-stores.
What Analysts think on the stock?
V stock price is currently trading above the 50 Moving average and 200 Moving average which means the stock is above the short and the long time horizon. Moreover, the price has crossed both the average from below, which gives a bullish view. As per tipranks.com, V stock has a consensus recommendation of “Strong Buy” based on a total 14 analysts ratings. 13 analysts recommended a “Buy” while 1 recommends a “Hold”. The average target price is $94.57, which is an upside of 14.84% as compared to the closing price of $82.35 on October 21st, 2016. Glenn Greene from Oppenheimer and Darrin Peller from Barclays reiterated their Buy rating on the stock with a target price of $112 and $100 respectively. Analysts from Vetr upgraded the stock to a “buy” against their earlier rating of “Hold” with a target price of $87.75.