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Visa's (V) Growth Prospects Bright for 2017: Time to Hold?

Zacks Equity Research

On Nov 22, 2016, we issued an updated research report on Visa Inc. V. This San Francisco, CA-based payment network giant’s latest quarterly results continued to depict strength in several areas, including solid revenue growth momentum.

Visa closed fiscal 2016 (ended Sep 30) with robust performance despite a challenging revenue environment amid volatile oil and commodity prices, strong dollar and concerns over the economic slowdown in China.

For fiscal 2016, adjusted earnings per share (EPS) of $2.84 increased 8% year over year. Revenues grew 9% year over year to $15.1 billion. The company witnessed continued growth in service revenues, driven by higher nominal payments volume, while overall growth in processed transactions led to increased data processing revenues. Also, international transaction revenues climbed on the back of cross-border volume growth.

Shares of Visa have gained around 3% in the past three months.



Looking into fiscal 2017, while Costco and USAA should drive payment growth in the U.S, cross-border growth rates will continue to recover with a stabilizing dollar. In addition, excluding Europe, process transactions are expected to shoot up. The company projects net revenue growth in the range of 16–18%. Further, EPS is expected to grow in mid-teens digit from the adjusted earnings of fiscal 2016. Notably, the projection includes EPS accretion from the Visa Europe acquisition in the range of 2–3%.

Currently, the company is focused on its several strategic growth initiatives, including global expansion of Visa Innovation Centers and its digital products – Visa Checkout and Visa Token Service.

Visa remains well poised for growth given its strong market position, solid global brand recognition and the current trend of shift toward electronic payments from paper-based forms.

However, escalating client incentives continue to limit the company’s profitability. Costs incurred under client incentives arrangements are accounted as reductions in the company’s operating revenues. Client incentives increased 19% year over year and reflected 18.4% of gross revenue in fiscal 2016. For fiscal 2017, management expects client incentives as a percent of gross revenues in the range of 20.5–21.5%. Among others, the weakness in European economy remains a key concern.

Over the past 30 days, the Zacks Consensus Estimate edged down 1.2% to $3.27 per share for fiscal 2017 and 1.8% to $3.85 per share for fiscal 2018.

Visa currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Compass Diversified Holdings LLC CODI: The Zacks Consensus Estimate for 2016 has moved up 1.4% to $1.43 per share for 2016 and 1.7% to $1.78 per share for 2017, in the last 30 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LPL Financial Holdings Inc. LPLA: Over the last 30 days, the Zacks Consensus Estimate for the current year increased 10% to $2.03 per share and climbed 5.3% to $1.98 per share for 2017. The company carries a Zacks Rank #2 (Buy).

Vantiv, Inc. VNTV: Over the last 30 days, the Zacks Consensus Estimate for the current year inched up 1.2% to $2.57 per share and went up 1% to $2.93 per share for 2017. The company carries a Zacks Rank #2.

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