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Is Visa stock a buy?
Visa (NYSE:V) is by far the leading U.S. payment card company in terms of payment volume, branded cards in circulation and market capitalization. What it hasn’t been lately is a popular investment; was late S&P 500 index, underperforming the benchmark stock indicator so far in 2024. It also tracks the index if you go back one, three, and even five years.
However, the company’s recently released earnings report featured a double beat on analyst estimates, accompanied by some impressive growth numbers. So Visa, for all its size and power, is something of a sleeper stock these days? Or is the market’s indifference justified?
Entering growth
First of all, to get a clear idea of Visa’s business, it’s important to look at what the company does and doesn’t do to make your money.
It is the brand that adorns credit and debit card scores and processes transactions on those cards. For this you receive a small percentage of each purchase. The company is not the issuer of these cards – that is, it does not grant any credit or transfer money from the customer’s account in the case of debit cards. The issuer of your debit or credit card is almost always a bank or other financial institution.
In the world of payment cards, companies like Visa are “open loop” operators, in that other entities are involved in transactions with your plastic. Archrival MasterCard is also an open circuit company. Closed-loop operators, on the other hand, typically also act as issuers of the credit, hence the “closed” descriptor. American Express and discover financial services – recently acquired per Capital One – there are two of these companies.
There is no “superior” operating model here; Both have advantages and disadvantages. A big advantage for Visa (and Mastercard, of course) is that open loopers are basically intermediaries who enter a transaction and exit. Someone else has to worry about whether the credit card holder will pay off the balance.
On the other hand, closed loops charge high interest rates on credit card debt and can also leverage the amounts of data they have on their customers to improve their own businesses.
With its relatively light operating profile, Visa’s goal is to get its cards into as many wallets and purses as possible. This is a volume business; the more customers charge on their cards, the more fees Visa can charge.
The company has been doing this effectively for years. In its second fiscal quarter, it managed to increase total payments volume by 8% compared to the previous year, in a double-digit increase (16%) in cross-border transactions. This drove net income to a 10% gain ($8.8 billion), reducing to a non-GAAP net income figure of $5.1 billion, for a robust 17% improvement. Visa beat analyst estimates on both the top and bottom lines.
The story continues
A solid company that is being ignored
Good growth numbers and quarterly results are the norm, not the exception, for Visa. So maybe “same old” is why its share price fell a bit after the second quarter numbers were released. Investors may also be more thirsty for yield these days, and Visa is not a good stock for that — although the company consistently pays dividends and raises them annually, its yield has always been a blip. Nowadays, it pays just 0.7%.
Meanwhile, your Direct P/E it has dropped below 30 (it is currently just above 28), at a time when analysts are collectively forecasting 16% growth in earnings per share this year alone, with a robust 12% increase in revenue. These percentages are expected to decrease slightly but still reach double-digit territory by fiscal year 2025.
As long as the global economy remains more or less healthy, I think these projections could be modest. The world is still moving to non-cash payment methods – standard in the US now, but not necessarily so in other corners of the globe – and the first beneficiary of this will be the world’s most powerful card company, Visa. . This is a good stock to own, and with many investors ignoring the company, now is a good time to buy it.
Should you invest $1,000 in Visa now?
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American Express is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Mastercard and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The motley fool has a disclosure policy.
Is Visa stock a buy? was originally published by The Motley Fool