Visa Stock To Report Strong Results In Q4?

by Trefis Team
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Visa (NYSE: V) is scheduled to report its fiscal Q4 2021 results on Tuesday, October 26 (after market close). We expect Visa to beat the revenues and earnings consensus estimates. The largest global electronic payment solutions company outperformed the expectations in the last quarter, with net revenues of $6.1 billion – up 27% y-o-y. This growth was because of a 54% y-o-y rise in international transaction revenues, followed by a 32% rise in domestic processing revenues. The top-line benefited from improvement in consumer demand and easing of Covid-19 related travel restrictions. Further, the net income increased 9% y-o-y to $2.6 billion in the quarter, driven by an increase in net revenues and partially offset by higher income tax due to the re-measurement of U.K. deferred tax liabilities. We expect the revenues to follow the same trend in the fourth quarter (FY Oct-Sept).

Our forecast indicates that Visa’s valuation is $279 per share, which is 21% above the current market price of close to $231. Our interactive dashboard analysis on Visa’s Earnings Preview has more details. 

(1) Revenues expected to edge past the consensus estimates

Visa’s revenues (net revenues) for full-year 2020 were $21.8 billion – 5% below the year-ago period. This was due to a 19% y-o-y drop in the international transactions revenues, partially offset by a 6% and 1% gain in the data-processing and services revenues respectively. 

  • Visa generates close to 35% of the total revenues from international transactions, which declined to 29% in 2020. The revenue stream is directly dependent on cross-border transaction volumes. The company witnessed some drop in cross-border transaction volumes in 2020 due to the Covid-19 related restrictions, leading to a 19% y-o-y drop in the international transactions revenues to $6.3 billion. That said, the volumes have seen some recovery over the first nine months of 2021 – up 4% y-o-y. The growth mainly came in the third quarter, resulting in a 54% y-o-y jump in the segment revenues. It was due to the easing of travel bans and improvement in consumer demand, and a fast-paced Covid-19 vaccination program. We expect the same trend to continue in the fourth quarter.
  • Although the company reported a 6% y-o-y and a 1% rise in the data-processing and services revenues in 2020 respectively, the growth rate was lower than the previous years. The data processing revenues are dependent on the number of processed transactions and services revenues are linked to payments volume, both of which suffered in the year due to the effect of the Covid-19 crisis. That said, the same has improved over the first nine months of 2021 – domestic payments volume increased 11% y-o-y. We expect the growth momentum to continue in the fourth quarter as well.
  • Overall, we expect Visa’s revenues to touch $24.1 billion for FY2021.

Trefis estimates Visa’s fiscal Q4 2021 revenues to be around $6.55 billion, slightly above the $6.52 billion consensus estimate. We expect the growth in cross-border transaction volumes and domestic payments volume to drive the fourth-quarter results.

Moving forward, we expect the recovery in the economy and lifting of Covid-19 related restrictions to boost the transaction volumes. Our dashboard on Visa’s revenues offers more details on the company’s operating segments along with our forecast for the next two years.

2) EPS is likely to beat the consensus estimates

Visa Q4 2021 adjusted earnings per share (EPS) is expected to be $1.65 per Trefis analysis, almost 7% above the consensus estimate of $1.54. The company’s adjusted net income decreased 10% y-o-y to $10.9 billion in 2020 due to lower net revenues and higher operating expenses as a % of revenues. Further, the same trend was observed in the first and second quarters of 2021, with net income decreasing by 4% y-o-y and 2% respectively. However, the pattern changed in the third quarter due to positive growth in top-line. We expect the higher revenues and a favorable drop in the operating expenses as a % of revenues to drive the profitability figures in the fourth quarter.

Going forward, we expect Visa’s net income margin to see some improvement in FY2021, leading to an adjusted net income of $12.3 billion – up 13% y-o-y. This will likely result in an EPS of $5.63.  

(3) Stock price estimate 21% higher than the current market price

We arrive at Visa’s valuation, using an EPS estimate of around $5.63 and a P/E multiple of just below 50x in fiscal 2021. This translates into a price of $279, which is 21% above the current market price of around $231. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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