It has been about a month since the last earnings report for Visa (V). Shares have lost about 12.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Visa due for a breakout? 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 Q1 Earnings Meet Estimates, Revenues Increase Y/Y
Visa reported first-quarter fiscal 2020 earnings of $1.46 per share, which matched the Zacks Consensus Estimate and were up 7.7% year over year.
The results were driven by growth in payments volume, cross-border volume and processed transactions.
Net operating revenues of $6.1 billion missed the Zacks Consensus Estimate by 0.16% but were up 10% year over year. This upside was primarily driven by an increase in all the components of net revenues such as service, data processing, international transaction revenues and others.
However, increase in client incentives, which constitute a contra revenue item, acted as a partial dampener to revenue growth.
Strong Financial Performance
On a constant-dollar basis, payments volume growth in the quarter was 8% year over year. Cross-border volume growth, on a constant-dollar basis, was 9%. Visa's processed transactions increased 11% from the prior-year quarter to 37.8 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 16% to $2.9 billion and international transaction revenues grew 9% to $2 billion. Other revenues increased 35% year over year to $365 million.
Client incentives of $1.7 billion increased 22.4% year over year.
Adjusted operating expenses increased 13% year over year to $2.03 billion, primarily due to higher personnel, network and processing, professional fees, depreciation and amortization, and general and administrative costs. Interest expense declined 23.4% year over year to $111 million.
Solid Balance Sheet
Cash and cash equivalents, and available-for-sale investment securities were $8.8 billion as of Dec 31, 2019, up 12.8% year over year.
Total assets were $74.8 billion as of Dec 31, 2019, up 3% year over year.
During the quarter, the company made share repurchases to the tune of $2.3 billion.
On Jan 28, 2020, the company declared a quarterly cash dividend of 30 cents per share, payable on Mar 3, 2020, to all holders of record as of Feb 14, 2020.
Developments During the Quarter
On Oct 22, 2019, Visa announced that it completed the acquisition of the token services and ticketing businesses of Rambus. These businesses will enable Visa to extend the security and convenience of tokenization to all types of transactions, including the ability to support domestic card networks and account-based and real-time payments systems
On Dec 13, 2019, the district court granted final approval of the 2018 settlement agreement, which provides monetary relief for Visa and Mastercard merchants of approximately $5.5 billion. The case is, however, not yet fully resolved as several objectors have filed notices to appeal to the district court’s decision.
On Jan 13, 2020, Visa announced that it has signed a definitive agreement to acquire Plaid, a network that makes it easy for people to securely connect their financial accounts to the apps they use to manage their financial lives. Visa will pay $4.9 billion cash consideration and $0.4 billion of retention equity and deferred equity consideration.
For fiscal 2020, Visa expects annual net revenues to grow in low double digits on a nominal basis, with approximately 1% of negative foreign currency impact and nearly 0.5% of positive impact from acquisitions. Client incentives, as a percentage of gross revenues, are projected to be in the high-end range of 22.5% to 23.5%.
Annual adjusted operating expense is expected to increase by mid- to high-single digit with approximately 1% of negative foreign currency impact and nearly 3-4% of positive impact from acquisitions.
The effective tax rate is estimated between 19% and 19.5%.
The company expects annual earnings per share growth in mid-teens.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Visa has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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