A month has gone by since the last earnings report for Visa (V). Shares have added about 9.2% 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 its most recent earnings report in order to get a better handle on the important drivers.
Visa Q2 Earnings Beat Estimates
Visa’s second-quarter fiscal 2020 earnings of $1.39 per share, which beat the Zacks Consensus Estimate by 2.96% and also rose 9% year over year.
This outperformance was driven by expanded payments volume and processed transaction, partly offset by a decline in cross-border revenues that suffered due to spending cuts as a COVID-19 fallout.
Further, net operating revenues of $5.9 billion topped the Zacks Consensus Estimate by 1.78% and improved 8% year over year as well. This upside was primarily driven by higher business volumes, partly offset by lower cross-border revenues and increase in client incentives, which constitute a contra revenue item.
Strong Financial Performance
On a constant-dollar basis, payments volume growth in the quarter was 5% year over year. Cross-border volume on a constant-dollar basis dipped 2%. Visa's processed transactions increased 7% from the prior-year quarter to 34.9 billion.
Service revenues increased 9% year over year to $2.6 billion on higher nominal payments volume. On a year-over-year basis, data processing revenues rose 11% to $2.7 billion and international transaction revenues grew 2% to $1.8 billion. Other revenues increased 20% year over year to $392 million.
Client incentives of $1.7 billion increased 15% year over year.
Adjusted operating expenses inched up 3.3% year over year to $1.9 billion, primarily due to higher personnel and depreciation and amortization.
Interest expense declined 15.7% year over year to $118 million.
Solid Balance Sheet
Cash and cash equivalents, and available-for-sale investment securities were $9.7 billion as of Mar 31, 2020, up 24.3% from the level as of Sep 30, 2019.
Total assets were $72.8 billion as of Mar 31, 2020, up 0.3% from the level as of Sep 30, 2019.
Share Buyback and Dividend Update
During the quarter, the company made share repurchases to the tune of $3.2 billion.
On Apr 21, 2020, the company declared a quarterly cash dividend of 30 cents per share, payable Jun 2, 2020 to its shareholders of record as of May 14, 2020.
Developments During the Quarter
On Jan 13, 2020, Visa signed a definitive agreement to acquire Plaid for $5.3 billion, a network that helps people easily and securely connect their financial accounts to the apps they use to manage their finances. The deal is expected to close by the end of 2020.
On Mar 31, 2020, the company issued senior notes worth $4 billion, the proceeds from which will be used for general corporate purposes.
Given the impact of COVID-19-led uncertainty on the company’s results, management has not provided any guidance for fiscal 2020.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -10.53% due to these changes.
Currently, Visa has an average Growth Score of C, a grade with the same score on the momentum front. 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.
Visa has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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