It has been about a month since the last earnings report for Visa (V). Shares have added about 0.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Visa's Q2 Earnings Beat on Increased Business Volumes
Visa Inc. reported second-quarter fiscal 2019 earnings of $1.31 per share, beating the Zacks Consensus Estimate by 5.65%. Also, the bottom line improved 18% year over year.
The results were driven by growth in payments volume, cross-border volume and processed transactions.
Net operating revenues of $5.5 billion beat the Zacks Consensus Estimate by 1.9% and were up 8.5% 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. Also, exchange rates negatively impacted revenues by 1.5%.
Strong Financial Performance
On a constant-dollar basis, payments volume growth in the fiscal first quarter improved 8% year over year. Cross-border volume growth, on a constant-dollar basis, was 4%. Visa's processed transactions increased 11% from the prior-year quarter to 32.5 billion.
Service revenues increased 7% year over year to $2.4 billion on higher nominal payments volume Notably, other revenue components are based on the reported quarter’s activity. Data processing revenues increased 14% on a year-over-year basis to $2.4 billion and international transaction revenues grew 3% to $1.8 billion. Other revenues increased 42% year over year to $327 million.
Client incentives of $1.5 billion increased 15% year over year and formed 21.2% of gross revenues.
Operating expenses increased 7% year over year to $1.9 billion, primarily due to personnel, and general and administrative costs. Interest expense decreased 8.5% year over year to $140 million.
Exchange rate shifts versus the prior year negatively impacted earnings per share growth by approximately 1.5% in the fiscal second quarter.
Balance Sheet Strengthens
Cash, cash equivalents and available-for-sale investment securities were $15 billion as of Mar 31, 2019, up 6.3% from fiscal year ended Sep 30, 2018 levels.
Total assets were $69.9 billion as of Mar 31, 2019, up 1% from fiscal year end Sep 30, 2018 level.
Share Repurchase and Dividend Update
During the quarter, the company repurchased shares worth $2 billion. The board of directors paid a quarterly dividend of 25 cents per share.
Visa reiterated its guidance for 2019. Annual net revenues are expected to grow in low-double digits on a nominal basis, with approximately 1% of negative foreign currency impact and minimum impact from the new revenue accounting standard. Client incentives, as a percentage of gross revenues, are projected in the range of 22-23%, annual adjusted operating expense is expected to increase in mid-to-high single digits and effective tax rate is estimated at approximately 20%.
The company lowered its class A common stock annual earnings per share growth in low twenties range (versus prior estimate of high teens) on a GAAP nominal dollar basis and in high-end of mid-teens (compared with prior estimate of mid-teens) on an adjusted, non-GAAP nominal dollar basis. Both these estimates include approximately 1.5% (versus 1% as contemplated earlier) of negative foreign currency impact.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Visa has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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.
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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