Is Visa Stock a Buy Now? Key Insights and Predictions for 2024

📈 Trade Details

Straight-out Visa Stock purchase at $271.69 (the price at the time of writing). 

🗒️ Quick Summary

NYSE Ticker: V

Visa Inc. is a global payments technology company that facilitates electronic funds transfers and payment processing services. Here are the key aspects of what Visa does:

1. Payment Processing: Visa operates a vast network that enables consumers, businesses, and governments to make electronic payments. This includes credit and debit card transactions, as well as digital payment solutions.

2. Card Issuing: Visa partners with financial institutions to issue Visa-branded cards, allowing cardholders to make purchases and access funds easily.

3. Merchant Services: Visa provides services to merchants, including payment acceptance solutions, fraud prevention tools, and analytics to help businesses manage transactions effectively.

4. Digital Payment Solutions: The company is actively involved in the development of digital payment technologies, including mobile payments, contactless payments, and online payment processing.

5. Global Reach: Visa operates in over 200 countries and territories, making it one of the largest payment networks in the world. Its extensive reach allows it to facilitate transactions across various currencies and regions.

🔥 What’s trending right now?

1. DOJ Antitrust Lawsuit:

   • On September 24, 2024, the U.S. Department of Justice (DOJ) filed a civil antitrust lawsuit against Visa, alleging that the company has been monopolizing the debit card market. This lawsuit has raised concerns among investors and has led to investigations by various law firms regarding potential violations of federal securities laws.

2. Investor Investigations:

   • Following the DOJ lawsuit, several law firms, including Kessler Topaz Meltzer & Check, LLP, Levi & Korsinsky, and the Schall Law Firm, have announced investigations into Visa. These firms are encouraging investors who may have suffered significant losses to come forward and participate in potential legal actions.

3. Analyst Ratings:

   • As of September 26, 2024, Visa has received a rating of B+ with a recommendation of "Neutral." Analysts have highlighted strong performance metrics, but the ongoing legal issues may impact future performance.

4. Recent Financial Performance:

   • Visa reported a net income of $17.27 billion for the fiscal year ending September 30, 2023, with an EPS of $8.29. The company continues to show strong financial metrics, which may help mitigate some investor concerns stemming from the lawsuit.

🎯 What do we expect?

If the expected Earnings Growth materializes, the expected return is 37.41% in 2026 or 17.13% annualized.

🎯 What analysts think (Stock Price Forecast):

Avg. Price: $305.84 (+12.6%)
Highest Price:  $328.68 (+20.9%)
Lowest Price: $251 (-7.6%)

At the current price, Visa stock offers a low margin of safety in the 10%+ range, which puts the stock in the holding zone at the current price for me if we are to trust analyst consensus prices. 

🎯 What do financial models think:

Avg. Price: $283.38 (+4.3%)

Breakdown by Model:

• 10Y DCF EBITDA Exit: 309.20 (13.89%)

• Dividends: Stable Growth: 278.27 (2.5%)

• Dividends: Multi-Stage: 349.80 (28.84%)

• Revenue Multiples: 266.51 (-1.83%)

• EBITDA Multiples: 279.78 (3.05%)

• PS Multiples: 259.71 (-4.34%)

• EBIT Multiples: 266.14 (-1.97%)

• P/E Multiples: 259.05 (-4.58%)

• PB Multiples: 253.07 (-6.78%)

• 5Y DCF EBITDA Exit: 292.44 (7.72%)

• 5Y DCF Growth Exit: 292.13 (7.6%)

• 10Y DCF Growth Exit: 280.85 (3.45%)

• 5Y DCF Revenue Exit: 283.50 (4.42%)

• 10Y DCF Revenue Exit: 296.93 (9.37%)

🕰️ Historical Performance vs. S&P500 ($10k Investment)

Here is the summary of your returns if you invested $10,000 in Visa Stock vs. S&P 500 since 2021. Despite impressive earnings growth, VISA underperformed the S&P500 over the last five years, delivering 5.66% ARR vs. 9.68% for SPY. However, Visa has grown its dividend much faster than the average company in the SPY.

🔮 Future Earnings Expectations

Future earnings expectations are solid and on par with what you would expect from a mature company. 

The Consensus EPS growth for VISA is 12% in 2025 & 14% in 2026.

🚚 Key Drivers of Future Growth

1. Stable Payments Volume Growth:

   • Overall payments volume grew by 7% year-over-year, with U.S. payments volume growing by 5% and international payments volume by 10%. This stability is crucial for maintaining revenue growth.

2. Cross-Border Volume Growth:

   • Cross-border volume, excluding intra-Europe, rose by 14%. This segment is particularly lucrative and contributes significantly to revenue.

3. Value-Added Services (VAS):

   • Revenue from value-added services grew by 23% year-over-year. This segment is becoming a larger part of Visa's overall revenue, accounting for about 25% of total revenue. The consistent growth in VAS indicates strong demand for Visa's consulting, marketing, and risk management services.

4. New Flows Revenue:

   • New flows revenue grew by 18% year-over-year, with Visa Direct transactions increasing by 41%. This growth reflects Visa's ability to innovate and capture new payment flows, especially in areas like peer-to-peer (P2P) transactions and commercial payments.

5. Strategic Partnerships:

   • Visa has formed strategic partnerships with various banks and financial institutions, expanding its client base and enhancing its service offerings. For example, partnerships with Lloyds Banking Group and NatWest in the U.K. are expected to drive additional volume and revenue.

6. Innovative Payment Solutions:

   • Visa is focusing on enhancing its payment solutions, including integrating Click to Pay and Visa Payment Passkey Service, which improves the checkout experience and reduces fraud.

7. Market Expansion:

   • Visa is actively expanding its presence in emerging markets, such as Latin America and Asia, where there is significant potential for growth in digital payments.

8. Brand Engagement:

   • The upcoming Olympic Games and other marketing initiatives are expected to enhance brand visibility and drive consumer engagement, potentially leading to increased transaction volumes.

9. E-commerce Growth:

   • The shift towards e-commerce continues to be a significant driver, with Visa's solutions being adopted by major platforms, further increasing transaction volumes.

Summary Table of Key Metrics

🐂 Key Bullish Arguments

• Strong Rally Despite DOJ News: Visa's stock rallied before the DOJ's antitrust lawsuit report, indicating market confidence in the company's resilience despite regulatory risks.

• Visa's Profitability and Growth Potential: The company remains highly profitable, with strong growth prospects in global consumer payments and value-added services, making it a potentially valuable long-term investment.

• Opportunities in Expanding Markets: Visa is exploring payment opportunities beyond consumer payments, such as rent payments, loan repayments, and business-to-business services, which could significantly increase its addressable market.

• Global Opportunities: Even if the DOJ lawsuit limits Visa's U.S. market strength, the company has the potential to strengthen its presence in international markets, particularly in consumer payments worth an estimated $20 trillion.

• Comparable to Competitors: While some analysts favor Mastercard over Visa, the two companies have virtually identical sector and industry rankings, suggesting that Visa remains a strong contender in the payment processing space.

• Investor Opportunity Amid Volatility: The current DOJ-related volatility and valuation concerns may present a buying opportunity for long-term investors to build a position in Visa at a relatively attractive price.

• Historical Resilience of Tech Giants: The text draws parallels to how Alphabet (Google) and Apple faced DOJ lawsuits but did not experience mass panic-selling, suggesting Visa's long-term strength could be unaffected by the lawsuit.

Key Positive Future Outlooks from the latest Earnings Call

1. Strong Financial Performance:

   • #We delivered strong third quarter results with $8.9 billion in net revenue, up 10% year-over-year, and EPS up 12%.

2. Stable Payments Volume Growth:

   • #In constant dollars, overall payments volume grew 7% year-over-year, U.S. payments volume grew 5%, and international payments volume grew 10%.

3. Positive Client Engagement:

   • #We achieved a Global Net Promoter Score (NPS) of 76, up three points from last year, indicating strong client satisfaction across all segments.

4. Significant Market Opportunities:

   • #We see more than $20 trillion of opportunity to capture cash, check, ACH, domestic schemes, and other forms of electronic payment.

5. Strategic Partnerships:

   • #We are pleased to have been named the Preferred Network Partner by Lloyds Banking Group, renewing our debit relationship and significantly expanding our relationship in credit.

6. Innovation in Payment Solutions:

   • #We are integrating Click to Pay and the Visa Payment Passkey Service, enabling customers to authenticate themselves using biometrics.

7. Growth in New Flows:

   • #New flows revenue grew 18% year-over-year in constant dollars, with Visa Direct overall transactions growing 41%.

8. Value-Added Services Expansion:

   • #Value-added services revenue grew 23% in the third quarter in constant dollars, driven by strong demand for issuing solutions and advisory services.

9. Continued Investment in Technology:

   • #We are all in on gen AI at Visa, applying it to enhance the entire payment ecosystem and drive productivity across the company.

10. Optimistic Outlook for Future Growth:

    • #We remain very excited about the opportunity that lies ahead of us, focusing on building and deploying the best solutions possible across consumer payments, new flows, and value-added services.

🐻 Key Bearish Arguments

1. Regulatory Concerns: Visa is facing increasing scrutiny from regulators, particularly the U.S. Department of Justice (DOJ), which has initiated investigations and lawsuits alleging anti-competitive practices. This could impede Visa's growth and profitability in the medium to long term.

2. Elevated Valuation Despite Slowing Growth: Despite not being projected to achieve high growth, Visa is valued at a premium, which makes the investment case less attractive compared to its peers.

3. Potential Impact on Market Dominance: Visa's dominance in the debit card market is under threat from the DOJ's lawsuit, which accuses the company of using exclusive agreements and penalties to prevent competition, possibly forcing Visa to compete with new entrants and reducing its market power.

4. Past Legal Issues: Visa has faced previous regulatory challenges, such as the blocked $5.3 billion acquisition of Plaid and investigations into its payment practices. These ongoing legal battles highlight Visa's vulnerability to regulatory actions.

5. Dependence on Debit Cards: A significant portion of Visa's business relies on debit cards, making it particularly vulnerable to regulatory actions targeting this market segment, as highlighted by the DOJ's recent lawsuit.

6. Possible Consequences of DOJ Actions: If the DOJ lawsuit succeeds, Visa could face forced fee reductions, restrictions on fee increases, and a requirement to end anti-competitive agreements, which would likely impact profitability and growth.

7. Unfavorable Valuation Metrics: Visa's price-to-earnings ratio is historically elevated, and analysts expect slower growth compared to peers like Mastercard and American Express. This suggests a valuation risk, especially given the regulatory pressures.

8. Volatile Cash Flow: Although Visa has shown cash flow growth, it has been volatile over time, which might be concerning in light of potential regulatory impacts.

9. International Regulatory Risks: Given Visa's significant international revenue, regulatory challenges in other countries, such as in India, pose additional risks that could limit the company's long-term growth prospects.

10. Weaker Competitiveness Compared to Peers: Competitors like American Express (AXP) are currently growing faster, have fewer regulatory issues, and are valued more attractively, making them more appealing investment options.

11. Investor Sentiment Risk: The growing legal pressure from different sources may sour investor sentiment in the short term, even if regulatory changes take years to materialize, potentially impacting Visa's stock price negatively.

12. Less Value Proposition: Compared to peers, Visa offers less value and is seen as an unattractive investment due to its premium pricing and potential regulatory challenges that may hinder outperformance.

Key Netgative Future Outlooks from the latest Earnings Call

1. Economic Uncertainty:

   • #We are monitoring macroeconomic conditions closely, as inflation and interest rate fluctuations could impact consumer spending and payment volumes.

2. Competitive Pressures:

   • #The competitive landscape is intensifying, particularly in the digital payments space, which may affect our market share and pricing power.

3. Regulatory Challenges:

   • #We face ongoing regulatory scrutiny in various markets, which could lead to increased compliance costs and operational challenges.

4. Currency Fluctuations:

   • #Foreign exchange volatility may impact our international revenue, as a stronger U.S. dollar could reduce the value of overseas transactions.

5. Slower Growth in Certain Markets:

   • #While we see strong growth in many regions, some markets are experiencing slower adoption of digital payments, which could hinder overall growth.

6. Rising Costs:

   • #We are facing rising operational costs, including technology investments and labor costs, which may pressure margins in the near term.

7. Potential Impact of Geopolitical Events:

   • #Geopolitical tensions could disrupt payment flows and affect our operations in certain regions, leading to uncertainty in revenue projections.

Conclusion

 I think the DOJ created an opportunity here. It put pressure on a stock that was rallying. With market expansion and superior dividend growth, I think Visa below $270 is a buy. The margin of safety is not as great as I typically would like, so if there is a further pullback in the price, I would be averaging down.

"Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price." - Warren Buffett

Disclaimer

I currently do not have an active position in any of the companies mentioned above but am thinking of initializing in the next few days. As usual, the information provided in this newsletter is for general informational purposes only. All information in the newsletter is provided in good faith, however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information. The content of this newsletter does not constitute financial advice, investment advice, or any other type of advice and should not be relied upon for any individual circumstances. We are not financial advisors, and you should consult with a professional before making any investment decisions. Any action you take upon the information in this newsletter is strictly at your own risk, and we will not be liable for any losses and/or damages in connection with the use of our newsletter.

Happy Investing,
Andy