Visa (V, Financial) continues to do well. It has risen since its IPO at $44 on 19 March to reach a high of $89.94 earlier this month and now trades slightly down from that level. Though the stock is probably not undervalued at its current price of $82.86, it still offers the prospect of steady gains in the long-term. If nothing else, it also seems to be the subject of some strong debate.
At its earnings conference call on 28 April, Visa reported a 48% increase in net income for the first quarter of 2008. Quarterly earnings per share were $0.39, or $0.52 when adjusted to exclude litigation, restructuring, and purchase amortization. Payment volume grew to $681 billion, 19% over the prior year. For the six months ended March 31, 2008, earnings per share were $0.93, or $1.08 when similarly adjusted. Visa indicated that it expects annual revenues to grow 11-15% over the next three years, with operating margins running at around 40%. Earnings per share should grow at 20% or greater. Annual free cash flow should exceed $1 billion.
After some mixed trading after the earnings announcement, Visa shares resumed their upward trend; they have only recently pulled back a little.
At its most recent closing price, Visa is trading at a rich forward P/E of 40.8 on average earnings estimates of $2.03 per share in 2008 and 32.8 on estimates of $2.53 per share in 2009. Earnings, according to the average of analyst estimates, are projected to grow 24% in the next year and something over 20% annually for the next five. It has a fairly solid profit margin of almost 22% in the most recent quarter, above the industry average.
How does this compare to Mastercard (MA)? The latter has a forward P/E for 2008 of 33.2 and for 2009 of 27.2. It reported outstanding profits in the last quarter, more than doubling year-on-year quarterly earnings per share, from $1.57 in 1Q 2007 to $3.38 in 1Q 2008. Going forward, its growth may be slightly slower than Visa's -- average estimates are for 22% next year and 19% annually over the next five.
Much of Mastercard's growth came from international markets, all of which exceeded growth rates in the United States. Joseph Saunders (Visa's CEO) emphasized this as a focus for Visa, one which may provide an additional boost to its revenues in the future. Currently, non-US markets provide only 39% of Visa's payments volume (for the 3 months ended in December); the comparable figure for Mastercard in its most recent report is 55%. Expansion in overseas markets could very likely boost Visa's growth to be more in line with Mastercard's results -- already, as with Mastercard, Visa's year-on-year growth across all foreign markets significantly exceeded domestic growth.
I like both the industry and company; the business model is a strong one, given the secular shift from cash to plastic and the lack of exposure to credit risk. Both Visa and Mastercard have good prospects, though I prefer Visa going forward, based on its market share and its expansion potential into new markets. Management's consideration of a possible share repurchase will not hurt prospects, either. As my subscribers know, I have owned the stock since the IPO and have added to it since; however, at these levels, I am reluctant to add too much more to my position.
I think there will be more opportunities to buy into Visa during the coming weeks and months. Bottom line -- don't rush in wildly, but buy on the pullbacks. You can build your position slowly in this one. At this time, I think any dip into the mid-$70's may be a good point to enter or commit additional funds.
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Source: See Aidis Zunde's Profile at Vestopedia
At its earnings conference call on 28 April, Visa reported a 48% increase in net income for the first quarter of 2008. Quarterly earnings per share were $0.39, or $0.52 when adjusted to exclude litigation, restructuring, and purchase amortization. Payment volume grew to $681 billion, 19% over the prior year. For the six months ended March 31, 2008, earnings per share were $0.93, or $1.08 when similarly adjusted. Visa indicated that it expects annual revenues to grow 11-15% over the next three years, with operating margins running at around 40%. Earnings per share should grow at 20% or greater. Annual free cash flow should exceed $1 billion.
After some mixed trading after the earnings announcement, Visa shares resumed their upward trend; they have only recently pulled back a little.
At its most recent closing price, Visa is trading at a rich forward P/E of 40.8 on average earnings estimates of $2.03 per share in 2008 and 32.8 on estimates of $2.53 per share in 2009. Earnings, according to the average of analyst estimates, are projected to grow 24% in the next year and something over 20% annually for the next five. It has a fairly solid profit margin of almost 22% in the most recent quarter, above the industry average.
How does this compare to Mastercard (MA)? The latter has a forward P/E for 2008 of 33.2 and for 2009 of 27.2. It reported outstanding profits in the last quarter, more than doubling year-on-year quarterly earnings per share, from $1.57 in 1Q 2007 to $3.38 in 1Q 2008. Going forward, its growth may be slightly slower than Visa's -- average estimates are for 22% next year and 19% annually over the next five.
Much of Mastercard's growth came from international markets, all of which exceeded growth rates in the United States. Joseph Saunders (Visa's CEO) emphasized this as a focus for Visa, one which may provide an additional boost to its revenues in the future. Currently, non-US markets provide only 39% of Visa's payments volume (for the 3 months ended in December); the comparable figure for Mastercard in its most recent report is 55%. Expansion in overseas markets could very likely boost Visa's growth to be more in line with Mastercard's results -- already, as with Mastercard, Visa's year-on-year growth across all foreign markets significantly exceeded domestic growth.
I like both the industry and company; the business model is a strong one, given the secular shift from cash to plastic and the lack of exposure to credit risk. Both Visa and Mastercard have good prospects, though I prefer Visa going forward, based on its market share and its expansion potential into new markets. Management's consideration of a possible share repurchase will not hurt prospects, either. As my subscribers know, I have owned the stock since the IPO and have added to it since; however, at these levels, I am reluctant to add too much more to my position.
I think there will be more opportunities to buy into Visa during the coming weeks and months. Bottom line -- don't rush in wildly, but buy on the pullbacks. You can build your position slowly in this one. At this time, I think any dip into the mid-$70's may be a good point to enter or commit additional funds.
____________
Source: See Aidis Zunde's Profile at Vestopedia
