Photo by CardMapr.nl on Unsplash 
 

Visa Inc. (V - Free Report) is well-poised to grow on the back of increasing business volumes, investments in digital technology, and strategic acquisitions. Also, the ongoing recovery of cross-border travel can be a major boon for Visa.

Visa continues to benefit from improving payments volume and processed transactions, contributing to the top line. However, increasing operating expenses will keep putting pressure on its margins.

Visa, a leading digital payments company with a market capitalization of more than $415 billion, offers a wide range of in-house payment products, which can be leveraged by its financial institution clients. Moreover, Visa delivers core business solutions and credit, debit, prepaid, and cash access programs to different account holders (individuals, businesses, and government entities).
 

Return on Equity (ROE)

Return on equity, a measure reflecting how efficiently a company utilizes shareholders’ money, was 50% in the trailing twelve months, better than the industry average of 37.6%.
 

Zacks Rank & Price Performance

Visa currently carries a Zacks Rank #2 (Buy). Year to date, the stock has gained 6.2%, outperforming the industry’s increase of 5.3%.
 

Estimate Revision & Earnings Surprise

The Zacks Consensus Estimate for 2023 has moved 1.6% north in the past 30 days, reflecting analyst optimism. During this period, it has witnessed 11 upward estimate revisions against none in the opposite direction.

Visa beat on earnings in all the last four quarters, the average being 8.6%.
 

Visa Inc. Price and EPS Surprise

Visa Inc. price-eps-surprise | Visa Inc. Quote
 

Key Drivers

In 2022, a significant portion of V’s gross revenues came from data processing which will keep improving on the back of processed transaction growth and improving payments volume.

Visa’s unwavering focus on transforming consumer spending habits from cash to cards and digital platforms is evident through its continued innovation in the Consumer Payments Space. While Visa’s core products drive most of its growth, it has also ventured into contactless payment solutions, such as Tap to Pay, Tokenization, and Click to Pay to provide a seamless user experience. Through Tokenization, Visa is aiming to leverage blockchain technology by enabling more secure transactions through the use of cryptographic information.

Its net revenues grew by 12% year over year in the first quarter of fiscal 2023. As the travel-related cross-border volume continues to recover, stability in payments volume and processed transactions and constant growth in domestic spending will contribute to further growth. With China lifting Covid-related restrictions and persistent modest improvements in the U.S. business, Visa shows improving prospects for its future results.

Visa is one of the most profitable companies around the globe. Thanks to its lucrative business model, V is expected to stay ahead of the competition amid the current market volatility. The company believes that consumers have shifted their spending from goods to services, promoting resilience in its revenue from debit cards. With debit and credit remaining resilient, Visa’s overall payment volumes have been stable.

Visa’s focus is fixed on improving business organically, then growing through mergers and acquisitions along with dividends and buybacks. With Visa’s strong footprint in the payments space, it works with about 650 co-brands around the world, increasing its reach to the end consumer. Visa’s focus on strategically investing in growth areas is praiseworthy. In the fiscal year 2022, Visa acquired The Currency Cloud Group Limited (CurrencyCloud), enabling financial institutions to provide innovative, cross-border foreign exchange solutions. Visa also acquired Tink, which is an open banking platform enabling Visa’s clients to build financial products and services.

Visa’s strong brand helps deliver value to its clients and financial institutions, through attractive brand expressions. Visa has partnered with FIFA, Olympic Games, and the NFL, making it the only brand in the world to be a top sponsor. This trend of marketing will not be slowing, as Visa aims to expand and diversify its range of partnerships for the benefit of its clients.

Visa’s strong and in-depth multi-layer security and its continued focus on keeping the clients’ or consumers’ data safe are remarkable. Visa also invests heavily in its comprehensive approach to cybersecurity.

The company returned $4 billion to its shareholders through dividends and share buybacks in the first quarter of fiscal 2023. Hence, Visa is a good buy for an investor looking for returns in the form of dividends.
 

Key Concerns

There are a few factors that are impeding the stock’s growth lately.

Visa’s operating expense was $2.8 billion for the first quarter of 2023, showing a 25% increase year over year, mainly due to higher personnel expenses and litigation expenses, which are bothering its profits. Even though Visa’s Client Incentives were lower for the first quarter of 2023, it is likely to rise in the future as the amount paid by Visa to grow payments volume and increase product acceptance will rise as part of its expansion.

The Russia-Ukraine war impacted Visa’s data processing revenues and will continue for the next few quarters due to a lag in recognition of the service fee revenues. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.

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