Visa’s Strong Performance Boosts Long-Term Potential

Visa (NYSE: V) reported earnings (PDF) after the market closed on Wednesday and it was a pretty good quarter for them:

• Net operating revenue of $5.07 billion, up from $4.48 billion (13% increase year-over-year))
• Adjusted net income rose to $2.61 billion, up from $2.1 billion (26% increase YOY)*
• Earnings of $1.11 per share, up from $0.86 per share (30% increase YOY)*

*During the same quarter last year, Visa had two special items relating to the legal entity reorganization of Visa Europe and the formation of the Visa Foundation, so I have presented the net income and EPS values as if they weren’t included because the company has stated that they are not reoccurring.

If you’ll recall from earlier this week, Visa is a part of my “War on Cash” basket with Mastercard (NYSE: MA), PayPal Holdings (Nasdaq: PYPL), and Square (NYSE: SQ). These stocks received a boost in after-market trading on Wednesday because of these results from Visa and PayPal (which I wrote about here), so I’m sure this trend will continue when the others release earnings next week.

The “War on Cash” thesis remains strong, as Visa saw its card volume increase for the quarter. They processed a total of 29.3 billion transactions, which was an increase of 12% over the prior year’s quarter. Total payment volume increased 11%, as did cross-border volume, which represents the higher-margin business of fees charged to card holders who are away from the region where the card was issued. These all reiterate that more and more transactions are being completed in a cash-free manner.

But you shouldn’t be invested in a company based on what they have done, but what they anticipate to do in the future. In this regard, Visa updated its overall financial outlook for the remainder of its fiscal year (which ends September 30, 2018), anticipating total annual revenue growth in the “low double-digits” and earnings per share growth of “high-20’s on an adjusted… basis.”

Should these projections come to pass, Visa should expect annual revenues of around $20.8 billion (based on 14% revenue growth) and earnings of $4.42 per share (based on 27% EPS growth). Based on their current P/E (approximately 42), we could expect an expected share price of around $185 if those earnings come to pass, which would be a 47% increase over the current price. That’s a lot of positive upside, and even some end result in the middle of that range would be great for investors.

These results reinforce my decision to keep Visa as a long-term holding in the portfolio, and I expect to see great things from this company going forward.

Until next time…

Disclosure: I have purchased shares of all companies mentioned on behalf of my mother and have no intentions of adding or selling shares over the next 30 days. Please read my full disclosure here.