Visa Stock To Edge Past The Street Expectations In Q3?

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Visa (NYSE: V) is scheduled to report its fiscal Q3 2022 results on Tuesday, July 26, 2022. We expect Visa to edge past the consensus estimates of revenues and earnings. The world’s largest global electronic payment solutions provider outperformed the consensus estimates in the last quarter. Its net revenues (total revenues minus client incentives) increased 25% y-o-y to $7.2 billion. This was mainly driven by a 20% y-o-y growth in nominal payments volume, followed by a 19% rise in the number of processed transactions, and a 42% jump in the cross-border volumes. Notably, the metrics benefited from improvement in the consumer spending levels and relaxation in the Covid-19-related international travel restrictions. We expect the same trend to continue in the third quarter (FY Oct-Sept).

Our forecast indicates that Visa’s valuation is $268 per share, which is 30% above the current market price of $207. Our interactive dashboard analysis on Visa’s Earnings Preview has more details. 

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(1) Revenues to marginally beat the consensus estimates

Visa’s revenues (net revenues) increased 10% y-o-y to $24.1 billion in FY2021. It was primarily driven by growth in data processing and service revenues, partially offset by lower international transaction revenues.

  • Data processing revenues are directly dependent on the number of processed transactions, which rose by 17% y-o-y in 2021. Further, the same trend was observed in the first half of FY2022, with the metrics increasing 20% y-o-y. We expect the third-quarter results to be on similar lines.
  • Services revenue is the second largest revenue stream after data processing. It is dependent on nominal payments volume, which increased 14% y-o-y in the previous financial year. Further, the services revenues grew 22% y-o-y in the first half of FY2022. It was mainly due to a 19% growth in the payments volume. We expect the same trend to follow in the third quarter.
  • International transaction revenues suffered in the last two financial years due to Covid-19-related travel restrictions. However, it has seen some recovery with the easing of travel bans. Markedly, the revenue stream is dependent on cross-border volumes. The volumes improved 45% y-o-y in the first half of FY2022, leading to a 49% jump in the international transactions revenues. We expect the third-quarter results to follow the same trend.
  • Overall, we estimate Visa’s net revenues to remain around $28.7 billion for FY2022.

Trefis estimates Visa’s fiscal Q3 2022 revenues to be around $7.2 billion, 1% above the $7.1 billion consensus estimate. 

2) EPS is likely to beat the consensus estimates

Visa Q3 2022 adjusted earnings per share (EPS) is expected to be $1.77 per Trefis analysis, 2% above the consensus estimate of $1.74. The company’s net income was up 13% y-o-y to $12.3 billion in FY2021. Further, it has improved 24% y-o-y to $7.6 billion in the first half of the current financial year. We expect the same momentum to continue in the third quarter. Overall, Visa is likely to report a net income of $15.2 billion and an annual EPS of $7.09 in FY 2022.

(3) Stock price estimate is 30% above the current market price

We arrive at Visa’s valuation, using an EPS estimate of around $7.09 and a P/E multiple of just below 38x in fiscal 2022. This translates into a price of $268, which is 30% above the current market price. 

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 Jul 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 V Return 5% -4% 166%
 S&P 500 Return 1% -20% 71%
 Trefis Multi-Strategy Portfolio 3% -21% 214%

[1] Month-to-date and year-to-date as of 7/19/2022
[2] Cumulative total returns since the end of 2016

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