After Another Solid Quarter, Visa Remains A Premiere Play On Global Economic Expansion

Kinahan Proven Right

Following American Express Company AXP, JJ Kinahan, the chief market strategist at TD Ameritrade said exclusively to Benzinga that he expects the credit card companies did well in the calendar year first quarter because of strong consumer confidence.

Q2 Print

Analyst Joseph Vafi noted that Visa's revenues of $4.48 billion, exceeded the $4.29 billion consensus estimate and adjusted earnings per share of $0.86 were 5 cents ahead of the consensus estimate.

Commenting on the results, Vafi said, "The upside was broad based, driven by solid volumes, strong revenue performance, solid cross-border volumes and somewhat lower than expected client incentives."

Key Q2 Metrics

• Payment Volume: Up 37 percent at constant currency.
• Cross-Border Volume: Up 11 percent, including Visa Europe in the year-ago results.
• Total Transactions Processed: Up 42 percent at constant currency and 12 percent, inclusive of Visa Europe a year ago.

The firm believes the company's increasingly global footprint, Visa payment and transaction volumes reflect a strengthening global economic environment and further pushes internationally into Japan and Russia.

Lower Incentives Was Unsurprising

Loop Capital Markets noted incentives during the quarter were 18.7 percent of gross revenues, lower than the mid-point of the annual guidance of 21 percent. The management indicated that slower deal renewals may be the reason, but expects incentives to tick higher in the fiscal year second half, the firm added.

Giving its take on the lower incentives, the firm said, "We thought that incentives might be lower this quarter based on the fact that several large takeaway wins that had already begun to ramp were fully baked into FQ1 results."

"Continued discipline around incentives is a testament to Visa's strong market position and lack of meaningful competition outside of its duopoly partner Mastercard Inc MA in our opinion."

Guidance Conservative

The firm noted Visa reiterated its 2017 guidance, but viewed the guidance as conservative. Given the strong second quarter showing and favorable macroeconomic backdrop and fundamentals, the firm said it is at a loss understanding how momentum can slow for the company in the fiscal year third and fourth quarters.

"While there may be less EPS upside if incentives do indeed ramp, some of this may be offset by further share buybacks," the firm said. The firm believes the additional $5 billion authorization and ample balance sheet cash could help repurchase activities add to earnings per share in low-single digits.

Concluding, the firm said it believes Visa "checks all the boxes" as a Buy-rated stock, on long-term growth, margin sustainability, cash flow, and management. Additionally, the firm believes Visa can maintain a steady earnings multiple while driving solid bottom-line growth.

The firm has a $101 price target for the shares of Visa.

At last check, Visa shares were up 0.70 percent at $91.79.

Earnings Ramp Up, But International Uncertainty Signals Caution Visa Now BMO's Top Pick In Fintech