VISA INC. $209 - New York symbol V

VISA INC. $209 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 628.4 million; Market cap: $131.3 billion; Price-to-sales ratio: 10.9; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.visa.com) operates the world’s largest electronic payments network, through which it processes credit, debit, prepaid and commercial transactions.

Visa gets most of its revenue from fees it charges card issuers and merchants for using its network. It bases its fees on payment volume, transactions processed and other factors. The banks that issue the cards are responsible for evaluating customer creditworthiness and collecting payments, not Visa.

In its fiscal 2014 second quarter, which ended March 31, 2014, Visa’s earnings jumped 25.8%, to $1.6 billion from $1.3 billion a year earlier. Per-share earnings rose 31.3%, to $2.52 from $1.92, on fewer shares outstanding. However, if you exclude a one-time tax benefit in the latest quarter, earnings per share rose 14.6%, to $2.20.

Revenue gained 6.9%, to $3.2 billion from $3.0 billion. The company gets half of its revenue from outside the U.S. Without the negative impact of currency exchange rates, revenue gained 9%. Visa processed 15.4 billion transactions in the quarter, up 10.9% from a year earlier.

Debit cards are a fast-growing area for Visa. To take full advantage, the company has been working with banks to develop new prepaid debit cards. Unlike current cards, which can have confusing fees and conditions, Visa’s cards will charge users a flat rate.

The stock has soared 175.0% since we first recommended it at $76 in our December 2010 issue. It now trades at 23.3 times the $8.97 a share that Visa will probably earn in fiscal 2014. That’s still a reasonable p/e ratio in light of the company’s well-known brand and strong international growth prospects, particularly in Asia and Latin America.

The $1.60 dividend yields just 0.8%, mainly because the company prefers to use its excess cash flow to repurchase shares. Since 2009, it has cut the number of shares outstanding by 17%.

Visa is a buy.

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