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Will the Beat Streak Continue for Visa (V) in Q4 Earnings?

Zacks Equity Research

Visa Inc. V is scheduled to report fourth-quarter and fiscal 2019 results on Oct 24. For the to-be-reported quarter, the Zacks Consensus Estimate for total revenues is pegged at $6.08 billion, indicating an 11.8% increase from the year-ago reported figure. The consensus mark for earnings per share stands at $1.43, indicating a rise of 18.18% from the prior-year reported number.

Revenues at Visa have risen consistently over the years, at a 10-year CAGR of 12.5%. Revenue growth continued in the first nine months of fiscal 2019, with the same being up 11% year over year. The company is likely to have retained its revenue momentum in the fourth quarter on the back of its strong market position and attractive core business that are steadily driven by new deals, renewed agreements, accretive acquisitions, increasing spending via cards, shift to digital form of payments and expansion of service offerings.

Revenues are likely to have benefited from higher payments volumes, cross-border volumes and processed transactions.

Service Revenues (34% of total revenues), constituting the support services provided to clients for usage of the company’s products, are aided by payments volumes. The Zacks Consensus Estimate for revenues from this business line suggests 10.3% increase to $2.56 billion from the year-earlier reported figure on the back of total payments volumes growth of 9% (at constant currency) recorded in the previous quarter.

Data Processing revenues depend on a number of transactions processed. Visa generates these revenues by authorizing, clearing, settling, providing network access and other services for the transactions processed.

The Zacks Consensus Estimate for revenues from this business line is pegged at $2.8 billion, indicating an increase of 16.7% from the year-ago reported number on an expected 12.1% improvement in processed transactions to 47.3 billion.

International Transaction Revenues (28%) are likely to have benefited from an increase in cross-border transactions, which are expected to climb 11.5% year over year to $2.19 billion, led by higher transactions in Europe, Asia Pacific, Canada, CEMEA and LAC.

However, Visa’s revenues might have been offset to some extent by a spurt in client incentives, rewarded to financial institutions and merchants to increase acceptance of its products and drive payment volumes on its network. This is a contra revenue item and has been on the rise for the last several quarters.

Operating expenses are expected to have increased, induced by higher personnel and marketing costs.

Visa is making significant investments in its business initiatives and strategic priorities, which include investments in its employees and digital products, technological operations plus merchant solutions to position itself for long-term sustainable growth. This might have resulted in elevated expense levels in the to-be-reported quarter and dragged down margins to some extent.

However, the bottom line is expected to have gained from the company’s share buyback in the fiscal third quarter.

Earnings Surprise History

The company boasts an attractive positive earnings surprise history, having surpassed estimates in each of the trailing four quarters, the average being 5.4%. This is depicted in the chart below:

Here is what our quantitative model predicts:

Our proven model does not conclusively predict an earnings beat for Visa this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Visa has an Earnings ESP of -0.51% and a Zacks Rank #3.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider as our model shows that these have the right combination of elements to beat on earnings in the upcoming releases.

Equifax, Inc. EFX  has an Earnings ESP of +5.31% and a Zacks Rank of 2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Discover Financial Services DFS has an Earnings ESP of +.31% and a Zacks Rank #3.

Fiserv, Inc. FISV has an Earnings ESP of +3.36% and a Zacks Rank of 2.

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Equifax, Inc. (EFX) : Free Stock Analysis Report
 
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