Visa Gains on Tourist Spending

May 2nd, 2011 by Trefis Team
+11.04%
Upside
271
Market
301
Trefis
V: Visa logo
V
Visa

According to recent data released by Visa (NYSE:V), international tourists increased their spending in the U.S. by 18% in 2010 compared to the previous year. The increase in spending was led by tourists from Canada, Britain and Mexico. U.S. travelers also increased their spending while travelling internationally in 2010. [1]. The travel and tourism industry showed signs of recovery in 2010 but is now under pressure from rising fuel costs. Visa is the largest provider of payment card network in the world and competes with MasterCard (NYSE:MA), American Express (NYSE:AXP), Discover (NYSE:DFS) and Capital One (NYSE:COF).

We have a price estimate of $85.03 on Visa’s stock which is about 9-10% above the current market price. Visa derives almost 20% of its value from charging customers from international transactions.

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International tourists in the U.S. carrying Visa branded credit cards spent more than $34 billion in 2010 up from $29 billion in 2009. Spending of visitors from Canada and Mexico increased by 18% while British travelers spent 11% more in 2010. Visitors from China, Australia and France were up 64%, 32% and 6% respectively.

U.S. travelers also spent 6% more while traveling abroad in 2010, and China registered strongest growth up 18% to $741 million in 2010. The Winter Olympic games in Canada led to an increase of 8% in U.S. travelers’s spending in Canada.

Visa charges its customers about 1% of the total dollar value of international transactions as cross border fees and currency conversion fees. Thus, growth in international travelers’ spending will lift Visa international transaction gross dollar value. We expect Visa’s gross dollar value of international transactions to increase at a compound rate of about 8% from 2011 to the end of our forecast period because of continued growth in travel and tourism industry.

However, there is 9-10% upside to our price estimate of Visa’s stock if its gross dollar value of international transactions increase by 10% year-on-year over this period.

See our full analysis of Visa.

Notes:
  1. Visa: International Tourist Spending In US Rose 18% In 2010, WSJ, April 25, 2011 [↩]