Visa (V) Up 4.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Visa (V). Shares have added about 4.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Visa Q4 Earnings Beat Estimates on Growing Payments Volume
Visa reported fiscal fourth-quarter 2022 earnings of $1.93 per share, which outpaced the Zacks Consensus Estimate of $1.86 and our estimate of $1.83. The bottom line climbed 19% year over year.
Net revenues improved 19% year over year to $7,787 million during the September quarter. The top line beat the Zacks Consensus mark of $7,544 million and our estimate of $7,547.9 million.
The strong quarterly results were aided by continued growth in payments volume, cross-border volume and processed transactions. International traveling witnessed an increase during the quarter due to the stronger dollar. As such, spending on travel and entertainment rose from the year-ago period. However, elevated operating costs partly offset the upside.
Full-year fiscal 2022 net revenues were $29.3 billion, up 22% year over year. Further, full-year earnings of $7.50 per share increased 27% from the year-ago period.
Operational Performance
On a constant-dollar basis, the payments volume of Visa rose 10% year over year in the September quarter. Processed transactions (implying transactions processed by Visa) advanced 12% year over year to 50.9 billion, despite inflation and rising interest rate worries, beating our estimate of 49.5 billion.
The total cross-border volume of Visa, on a constant dollar basis, rose 36% year over year in the quarter under review. Excluding transactions within Europe, V’s cross-border volume (that usually boosts the company’s international transaction revenues) grew 49% year over year on a constant-dollar basis.
Service revenues of $3,458 million improved 11% year over year during the September quarter, beating our estimate of $3,433.5 million, thanks to higher payments volume in the prior quarter. Data processing revenues grew 10% year over year to $3,765 million, beating our estimate of $3,669.2 million.
Other revenuesof $551 million registered year-over-year growth of 13% but missed our estimate of $610.4 million. Meanwhile, International transaction revenues jumped 52% year over year to $2,873 million in the quarter under review, beating our estimate of $2,490.3 million.
Client incentives(a contra-revenue item) increased 20% year over year to $2,860 million, beating our estimate of $2,655.6 million. The metric accounted for 26.9% of Visa’s gross revenues of $10,647 million.
Operating expenses of $2,632 million escalated 18% year over year, mainly due to higher personnel and professional fees as well as general and administrative expenses. Interest expense increased 27.2% year over year to $159 million in the September quarter.
Balance Sheet (as of Sep 30, 2022)
Visa exited the September quarter with cash and cash equivalents of $15,689 million, which decreased 4.8% from fiscal year-end Sep 30, 2021.
Total assets of $85.5 billion increased 3.1% from fiscal year-end Sep 30, 2021.
Long-term debt amounted to $20.2 billion, up 1.1% from fiscal year-end Sep 30, 2021. Current maturities of debt amounted to $2.3 billion.
Total equity of $35.6 billion dropped 5.3% from the 2021 fiscal year-end.
Cash Flow
In the September quarter, net cash provided by operating activities totaled $5,876 million, which increased from $3,971 million a year ago. Free cash flow of $5,581 million climbed from $3,763 million in the year-ago period.
Capital Deployment Update
Visa rewarded $2.9 billion to shareholders to the tune of $2.1 billion in share buybacks and dividends of $794 million in the September quarter. As of Sep 30, 2022, V had leftover authorized funds of $5.1 billion under its share buyback program.
The company increased its quarterly cash dividend by 20% to 45 cents per share. It authorized a new $12 billion share buyback program.
Outlook
The company plans to extend expenses by high single digits in the coming year, which might be reduced depending on the economic and geopolitical scenarios.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Visa has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending downward for the stock, and the magnitude of these revisions looks promising. 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 is part of the Zacks Financial Transaction Services industry. Over the past month, Equifax (EFX), a stock from the same industry, has gained 20%. The company reported its results for the quarter ended September 2022 more than a month ago.
Equifax reported revenues of $1.24 billion in the last reported quarter, representing a year-over-year change of +1.8%. EPS of $1.73 for the same period compares with $1.85 a year ago.
For the current quarter, Equifax is expected to post earnings of $1.53 per share, indicating a change of -16.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0% over the last 30 days.
Equifax has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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