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Visa looks to overseas growth to keep profits and share price rising

Visa looks to overseas growth to keep profits and share price rising

VISA INC. (New York symbol V; www.visa.com) operates the world’s largest electronic payments network. The company processes credit, debit, prepaid and commercial payments under the Visa, Visa Electron, Interlink and PLUS brands.

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

The company continues to benefit as more people pay for purchases with credit and debit cards instead of cash or cheques. Its revenue rose 66.4%, from $6.3 billion in 2008 to $10.4 billion in 2012 (fiscal years end September 30).

Earnings jumped 147.2%, from $1.7 billion in 2008 to $4.2 billion in 2012. Earnings per share rose at a faster rate of 175.6%, from $2.25 to $6.20, on fewer shares outstanding. However, the U.S. government has passed new rules that limit fees credit card firms can charge merchants to access their networks. This will cut Visa’s 2013 earnings by $0.15 a share.

How Successful Investors Get RICH

Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.

How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.

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Investing in stocks: September 2013 court ruling could let Visa cancel settlement of class-action lawsuit

Visa and other credit card firms recently agreed to pay a total of $7.25 billion to settle a class-action lawsuit that accused them of fixing the fees that U.S. retailers pay to process cards. Visa has already set aside $4.4 billion to cover its share of the deal. However, several major retailers have rejected the settlement. If 25% of these merchants opt out, Visa and the other credit card issuers can cancel the agreement. A judge will make a final ruling in September 2013.

Overseas operations now supply 45% of Visa’s revenue. Card use in developing regions like Latin America and the Middle East continues to expand. As well, the company has formed alliances with wireless carriers in countries like India that make it easier for people without a regular bank account to use their cellphones to buy goods and pay bills.

Visa is also using its steady cash flow to buy back its stock: it recently spent $3.1 billion on buybacks and expects to repurchase a further $1.0 billion of shares by January 2014.

As well, dividends account for less than 10% of Visa’s cash flow, so it has plenty of room to raise its annual payout of $1.32, which yields just 0.7%.

The stock has soared 140.8% since we first recommended it at $76 in our December 2010 issue. It now trades at 24.5 times the $7.48 a share that Visa will probably earn in fiscal 2013.

In the latest edition of Wall Street Stock Forecaster, we look at whether Visa’s growing overseas revenues will offset a potential drop in U.S. fee income caused by new government rules. We also look at Visa’s financial outlook and whether its share price can keep on rising. We conclude with our clear buy-hold-sell advice on the stock.

(Note: If you are a current subscriber to Wall Street Stock Forecaster, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

Former Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty are just two of the prominent figures who have warned against high personal debt levels. Do you think credit card use will decline, or do you think buying on credit is simply too ingrained to fall off significantly? Let us know what you think.

Comments

  • Grant 

    I don’t personally see credit card use earnings declining by any significant amount. Yes, we are too engrained but they will have to keep sweetening the pot with larger rebates etc. They make a ton of money and I would like more returned. Grant C.

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