Why Is Visa (V) Up 5.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Visa (V). Shares have added about 5.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Visa due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Visa Q3 Earnings Beat on Processed Transactions, Sales Miss
Visa reported strong third-quarter fiscal 2024 earnings, which benefited from expanding processed transactions and cross-border volume. Its earnings per share (EPS) of $2.42 outpaced the Zacks Consensus Estimate by a penny. The bottom line rose 12% year over year. However, higher operating expenses and client incentives partially tempered the upside.
Net revenues improved 10% year over year to $8.9 billion in the quarter under review. However, the top line missed the consensus mark by 0.1%, a rare feat for the payments juggernaut. Lower-spend consumer category, having decreased disposable income, is cutting back on spending. Concerns regarding cooling consumer spending growth, especially in high-ticket and discretionary items, are likely to keep the stock under pressure.
Business Drivers
Visa's payments volume increased 7% year over year on a constant-dollar basis in the fiscal third quarter, attributable to expanding operations across Canada, Europe, CEMEA, United States and LAC regions. But it missed the Zacks Consensus Estimate by 2.9% and our model estimate by 2%. Processed transactions (implying transactions processed by Visa) grew 10% year over year to 59.3 billion and beat the consensus estimate by 0.6%.
On a constant-dollar basis, the cross-border volume of Visa climbed 14% year over year in the quarter under review. Excluding transactions within Europe, its cross-border volume (that boosts a company’s international transaction revenues) also rose 14% year over year on a constant-dollar basis.
Q3 Operational Performance
Service revenues (depending on payments volume in the previous quarter) of $4 billion grew 8% year over year in the June quarter on the back of increased payment volumes and met our model estimate. Data processing revenues of the company climbed 9% year over year to almost $4.5 billion, which marginally missed both the Zacks Consensus Estimate and our estimate.
International transaction revenues amounted to almost $3.2 billion, which improved 9% year over year in the fiscal third quarter. The metric benefited from increased cross-border volume and met our model estimate but missed the consensus mark by 1.7%. Other revenues rose 31% year over year to $780 million, which beat the Zacks Consensus Estimate and our estimate by around 6.9% and 9%, respectively.
Client incentives (a contra-revenue item) escalated 11% year over year to $3.5 billion in the quarter under review but were lower than both the Zacks Consensus Estimate and our estimate of $3.6 billion. The metric accounted for 28.4% of the company’s gross revenues of $12.4 billion.
Adjusted operating expenses of Visa increased 14% year over year to $2.9 billion in the fiscal third quarter due to higher personnel, marketing, network and processing, professional fees and G&A expenses. Interest expenses of $196 million rose from $182 million reported in the year-ago period.
Balance Sheet (as of Jun 30, 2024)
Visa exited the June quarter with cash and cash equivalents of $12.9 billion, which fell from the fiscal 2023 year-end level of $16.3 billion. Total assets of $91 billion rose from $90.5 billion in the fiscal 2023 year-end level.
Visa’s long-term debt amounted to $20.6 billion, which inched up from the fiscal 2023 year-end level of $20.5 billion.
Total equity of $39.7 billion increased from the fiscal 2023 year-end figure of $38.7 billion.
Cash Flows
The company generated net cash from operations of $5.1 billion in the fiscal third quarter, which declined from $5.8 billion a year ago. Free cash flows are recorded at $4.7 billion, down from $5.5 billion in the year-ago period.
Capital Deployment Update
Visa rewarded $5.83 billion to shareholders via share buybacks ($4.77 billion) and dividends ($1.06 billion) in the June quarter. Visa had leftover authorized funds of $18.9 billion under its repurchase program as of Jun 30, 2024.
On Jul 23, 2024, management sanctioned a quarterly cash dividend of 52 cents per share, which will be paid out on Sep 3 to shareholders of record as of Aug 9.
Fiscal 4Q24 Outlook
On an adjusted constant-dollar basis, net revenues are anticipated to witness low double-digit growth. Operating expenses are estimated to grow by high single digits on an adjusted constant-dollar basis. It expects EPS to witness the high end of low double-digit growth.
Fiscal 2024 View
Management continues to expect net revenues to grow in low double digits on an adjusted constant-dollar basis in fiscal 2024. Operating expense is expected to witness high single-digit to low double-digit growth on an adjusted constant-dollar basis. It also anticipates EPS to witness growth in the low teens.
Amortization of acquired intangible assets is projected at around $180 million or 7 cents per share. Acquisition-related costs are expected at roughly $105 million or 5 cents per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Visa has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Visa has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Visa belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Equifax (EFX), has gained 14.4% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Equifax reported revenues of $1.43 billion in the last reported quarter, representing a year-over-year change of +8.6%. EPS of $1.82 for the same period compares with $1.71 a year ago.
Equifax is expected to post earnings of $1.82 per share for the current quarter, representing a year-over-year change of +3.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Equifax. Also, the stock has a VGM Score of C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Visa Inc. (V) : Free Stock Analysis Report
Equifax, Inc. (EFX) : Free Stock Analysis Report