Buy Visa To Take Advantage Of Electronic Payment Processing Growth
We have been long Visa (V) since last year. While we believe that the easy money has been made with this company, we took issue with UBS’s IT Services Analyst John Williams slapping a sell recommendation on Visa and MasterCard (MA) in July and reducing his target prices on those companies by about 11% each. At the same time, we didn’t judge him for getting it wrong because we were pleased that Visa had generated such strong results in its FQ3 2012 period and it continued its sterling record of exceeding analyst expectations, including our own. We love the business model for the credit card companies is not only recession resistant, it also benefits from payments migrating away from analog payments like cash and checks and towards digital payments like credit/debit cards and online payments.
We find Visa to be a consistent cash generator and that’s why we have it and like it. The company beat consensus EPS estimates by $0.03 per quarter from Q2 2011 to Q1 2012 and it smashed through Q2 expectations with $1.60 in adjusted EPS, $.10 ahead of the $1.50 consensus and Q3 expectations with $1.56 in adjusted EPS, $.11 ahead of the $1.45 consensus. Visa’s Q4 2012 adjusted EPS of $1.54 only beat consensus estimates by $.04. This was 21% above the $1.27 earned in Q3 2011 and benefited from the following growth drivers:
- Organic revenue growth (14.6% Total Revenue Growth which included a Negative impact from currency relating to the strong US Dollar)
- Bolt-on acquisitions executed in the prior year’s period
- A reduced outstanding share count aided by 3M shares repurchased in the quarter and 20M on a year-over-year basis
- Positive operating leverage due to reductions in network processing and general and admin expenses