Visa (V) has a strong earnings track record and is making more moves in digital payments. Is Visa stock a buy right now?
The Dow Jones stock dominates U.S. credit card networks by transactions and cards in circulation. It has ample room to grow in digital payments, while pursuing new bets in fintech and cryptocurrencies.
Both Mastercard stock and PayPal stock are on the IBD Long-Term Leaders list.
Visa Stock Technical Analysis
The payments giant is forming a new flat base with a buy point of 217.75, while a prior 202.28 entry is still valid.
During the coronavirus crash, Visa stock declined 37%, which is much less than many other top stocks did in the bear market.
Shares earn an IBD Composite Rating of 56 out of a possible 99. The rating combines key fundamental and technical metrics in a single score. A 36 RS Rating is below the 80 or higher that investors in top growth stocks would want to see.
The D- Accumulation/Distribution Rating reflects moderate selling by institutional investors in the past 13 weeks. Visa stock is highly traded, with 7.9 million shares exchanging hands on a typical day.
Half of Visa shares are owned by mutual funds: 5,400 funds owned Visa stock as of September, up from 5,314 in June.
Visa Earnings And Fundamentals
Visa and Mastercard, with China’s UnionPay, operate the world’s biggest electronic payment networks.
Mastercard and Visa process card transactions but don’t issue credit cards, unlike American Express and Discover Financial Services (DFS), which do both. Credit card issuers may confront headwinds from surging unemployment, as Americans default on their payments during the virus outbreak.
Also, Visa and Mastercard have less exposure to interest-rate risk. Visa neither earns revenue from nor bears risk tied to the interest or fees paid by cardholders. Instead, Visa derives revenue from client services, data processing, cross-border transactions and value-added services, such as licensing fees. Its network spreads across more than 200 countries and regions.
On key earnings and sales metrics, Visa stock earns an EPS Rating of 74 out of 99, and an SMR Rating of B, on a scale of A to E, with A the best. The EPS rating reflects a company’s health on fundamental earnings, and its SMR Rating measures sales growth, profit margins and return on equity.
On Oct. 28, Visa reported fiscal Q4 earnings dropped 23% to $1.12 per share, while revenue fell 17% to $5.1 billion. But that was still better than analysts had expected. Payments volume recovered from a double-digit decline last quarter to a 4% increase for the quarter and a 2% increase for the year. Processed transactions also moved out of the red with a 3% increase for the quarter and 2% increase for the year. Cross-border volume declined 29% for Q4 and 16% for the full year.
Over the past three years, Visa averaged 16% EPS growth and 8% sales growth, according to the IBD Stock Checkup tool.
Visa Eyes New Markets, Faces Setbacks
Visa plans to bring business-to-business (B2B) payments to 32 new countries, more than doubling its reach. That comes as lucrative cross-border transactions are under strain.
Meanwhile, Visa is paying $5.3 billion to acquire Plaid, a fintech that connects a user’s bank accounts to apps such as Acorns and Venmo. But the Justice Department launched an antitrust lawsuit on Nov. 5 to block the purchase. DOJ says Visa has a monopoly in online debit card services, with a market share of more than 70%.
Visa counters that the relevant industry is online payments. That market includes not only online debit card services but also credit cards and services like Apple Pay and other methods of direct debit from bank accounts, such as PayPal.
In addition, the Visa Token Service generated an estimated $1 trillion in e-commerce sales in just over five years after launch. Tokenization helps to protect users’ payment data and is seen as a growth driver.
Visa acquired several small tech companies offering tools for tokenization and dispute resolution.
In cryptocurrencies, Visa reports onboarding more than 25 companies, after Visa itself joined and then left the Facebook-led Libra Association. On Dec. 2, Visa and cryptocurrency financial tech company BlockFi partnered to release the Bitcoin Rewards Credit Card to U.S. residents (excluding New York due to regulatory restrictions). The card will be issued in spring 2021 by Evolve Bank & Trust.
Visa recently also added crypto lender Cred, which is using Visa’s network to send interest payments to users’ bank accounts.
Meanwhile, Visa faces billion-pound payouts after Britain’s highest court found in June that both Visa and Mastercard curbed competition tied to fees for retailers. The companies levy so-called interchange fees on retailers when cardholders make a transaction, and it has been a bone of contention for years.
According to its most recent annual report, Visa expects to move $17 trillion in consumer spending and $15 trillion-$20 trillion of business spending to cards and digital formats. Currently, much of that spending is still done in cash and checks.
As the pandemic drags on, Visa payments volume and processed transactions are improving faster than cross-border volumes. The term refers to transactions between shoppers and merchants from different countries.
Meanwhile, a positive trend amid the pandemic is the continued shift to e-commerce sales around the world.
“This works in our favor because Visa’s share of digital commerce, where cash is not an option, is approximately three times greater than the physical point of sale,” Visa said.
Payment processing is a profitable business. Visa stock leads most rivals with a 66% pretax profit margin. Visa’s 36% return on equity far exceeds the minimum 17% or higher investors would want to see.
Digital payments — fueled by the rise of 5G networks — are a growth opportunity. Visa’s real-time push in payments technology has seen robust growth during the pandemic.
In June, Visa announced it’s partnering with Facebook (FB) on WhatsApp payments in Brazil. The messaging service has 120 million users in the largest country in South America.
Brazil’s central bank authorized payments via WhatsApp chat in July, after briefly suspending the newly launched service and ordering Visa and Mastercard to halt such payments. The central bank cited competitive and data privacy risks for its earlier decision.
Visa And Coronavirus
A renewed downturn in global growth and consumer spending would be a major risk to Visa stock, after the coronavirus delivered a demand shock.
The hardest-hit category for Visa includes travel, fuel, restaurants and entertainment. The segment comprises a third of Visa’s U.S. payments volume.
The food and drug stores category has returned to growth, along with home improvement, retail, automotive, health care, education and government. Visa’s also looking to capture opportunities from the pandemic.
One example is contactless payments. Even countries where tap-to-pay adoption used to be sluggish are picking up the pace amid the pandemic.
Visa had been trying to grow contactless adoption even before the coronavirus outbreak, hoping tap-to-pay would replace cash for small purchases. More than 500 cities around the world have adopted contactless or tap-to-pay fare payments, powered by Visa, as the recovery in public transit begins.
Rival Payment Stocks To Visa
Paysign (PAYS) is an emerging player, focused on health care and online staffing. PagSeguro Digital (PAGS) and Qiwi (QIWI) are other names to watch. Brazil’s StoneCo (STNE), backed by Warren Buffett, is also one to watch.
Investing legend Buffett also has tiny stakes in Visa stock and Mastercard stock and a huge position in American Express stock.
The payment processing group ranks No. 45 out of 197 industry groups tracked by IBD. Visa stock ranks No. 17 in this group; PayPal stock and Square stock earn the top spots, as clear winners since the coronavirus market crash.
Mastercard, Visa’s closest peer, also pulled back in September to just below its 50-day line, but quickly moved back above it. It never undercut its prior buy point.
Is Visa Stock A Buy?
The Dow Jones card giant has a commanding share in the fast-growing digital payments market. Visa earnings confront coronavirus headwinds in the near term, but the longer-term outlook remains solid.
Meanwhile, Visa’s margins and ROE are among the best in the business. Visa is also a top payments stock in an industry group that is acting well.
To be sure, competition in digital payments is intense. And global economic and legal/regulatory risks are ever-present, as the recent U.K. court ruling and DOJ antitrust lawsuit show.
From a technical perspective, shares are back near a buy point and below a key support level. The key RS line is lackluster of late but within a multiyear uptrend.
Bottom line: Visa stock is a buy as its last entry remains valid and shares are still in the chase zone, which extends to 212.39. It’s also working on a new buy point of 217.75. The stock market is also still in a confirmed uptrend, and the Dow Jones card giant has retaken its 50-day line.
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