Visa Stock To Report Strong Earnings In Q1, Is It A Buy?

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Visa

Visa (NYSE: V) is scheduled to report its fiscal Q1 2022 results on Thursday, January 27, 2022 (after market close). We expect Visa to top the revenues and earnings consensus estimates. The company reported better than expected results in the last quarter, with net revenues increasing by 29% y-o-y to $6.6 billion. This could be attributed to a 41% y-o-y rise in both the international transaction revenues and services revenues, followed by a 20% y-o-y growth in data-processing revenues. The top-line benefited from improvement in the consumer activity levels and easing of Covid-19 related travel restrictions in the quarter. We expect the international transactions revenue to see some headwinds in the first quarter due to an uptick in Covid-19 cases, which led to travel restrictions in some countries. However, data-processing and services revenues are likely to maintain their growth trajectory in the quarter (FY Oct-Sept).

Our forecast indicates that Visa’s valuation is $254 per share, which is 26% above the current market price of close to $202. Our interactive dashboard analysis on Visa’s Earnings Preview has more details. 

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(1) Revenues expected to edge past the consensus estimates

Visa’s revenues (net revenues) for FY 2021 were $24.1 billion – up 10% y-o-y, driven by a 17% y-o-y increase in both the data-processing and services revenues, followed by a 4% rise in the international transactions revenues. 

  • International transactions contribute roughly 35% of the top-line. However, it suffered in FY 2020 due to the Covid-19 crisis and travel bans. The same trend continued in the first two quarters of FY 2021, as well. However, the situation improved in the third and fourth quarters with the easing of travel restrictions. Notably, the company posted a 4% y-o-y increase in the international transactions revenue. That said, the Covid-19 cases resurged in the first quarter of FY2021, leading to travel restrictions. This will likely impact the segment revenues in the quarter.
  • Data-processing and services revenues witnessed a stagnant growth in FY2020 due to lower consumer activity levels. However, the pattern changed in FY2021, with both the segments posting a 17% y-o-y growth. We expect the growth momentum to continue in the first quarter.
  • Overall, we expect Visa’s revenues to touch $24.1 billion for FY2022.

Trefis estimates Visa’s fiscal Q1 2022 revenues to be around $7.02 billion, 3% above the $6.79 billion consensus estimate. We expect the growth in domestic payments volume to drive the first-quarter results.

Going forward, we expect the transaction volumes to see further growth with improvement in the economy. Further, the shift toward digital payments due to the Covid-19 pandemic is likely to stay and benefit the company’s top-line. 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 Q1 2022 adjusted earnings per share (EPS) is expected to be $1.77 per Trefis analysis, almost 4% above the consensus estimate of $1.70. The company’s adjusted net income improved 13% y-o-y to $12.3 billion in 2021, driven by growth in top-line and lower operating expenses as a % of revenues. While the profitability figures suffered in the first and second quarters of the fiscal year, it witnessed strong growth in the third and fourth quarters. We expect the first quarter 2022 results to be on similar lines as the last quarter. Overall, Visa is likely to report an annual EPS of $5.63 for full-year 2022. 

(3) Stock price estimate 26% 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 above 45x in fiscal 2021. This translates into a price of $254, which is 26% above the current market price of around $202. 

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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 Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MA Return -3% -3% 238%
 S&P 500 Return -7% -7% 97%
 Trefis MS Portfolio Return -10% -10% 252%

[1] Month-to-date and year-to-date as of 1/25/2022
[2] Cumulative total returns since the end of 2016

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