Is Visa Stock Undervalued?

Visa’s stock (NYSE: V) has increased 13% YTD, as compared to the 15% rise in the S&P500 over the same period. Further, at its current price of $234 per share, it is trading 12% below its fair value of $267 – Trefis’ estimate for Visa’s valuation. The company outperformed the consensus estimates in the second quarter of FY2023 (FY Oct-Sept), with net revenues (revenues minus client incentives) increasing 11% y-o-y to $7.99 billion. It was due to a 7% improvement in the services revenues, a 10% rise in the data processing revenues, and a 24% jump in the international transactions income. Notably, the total nominal payments volume grew 2% y-o-y, followed by a 12% increase in the number of processed transactions and a 27% jump in cross-border volume. Overall, the net income rose by 17% y-o-y to $4.26 billion.

The top line increased 12% y-o-y to $15.92 billion in the first half of FY2023. It was driven by growth in all three key metrics – payments volume, number of switched transactions, and cross-border volume. That said, operating expenses as a % of revenues increased from 32.8% to 34.5% in the quarter. Altogether, the firm posted a net income of $8.44 billion in the first two quarters of the year – up 11% y-o-y.

Moving forward, we expect the same trend to continue in Q3. Markedly, the consensus estimates of Q3 revenues and earnings are $8.07 billion and $2.11 respectively. All in all, Visa’s revenues are estimated to touch $32.9 billion in FY2023. Additionally, Visa’s adjusted net income margin is likely to increase from 51% to around 55% in the year. It will likely result in an adjusted net income of $18.06 billion and an annual EPS of $8.61. This coupled with a P/E multiple of 31x will lead to a valuation of $267.

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[1] Month-to-date and year-to-date as of 6/30/2023
[2] Cumulative total returns since the end of 2016

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