Will Visa (V) Q4 Earnings Miss on Lower Cross-Border Fees? - Analyst Blog

Global electronic payment processing giant – Visa Inc. (V) is scheduled to release its fourth-quarter of fiscal 2014 financial results after the closing bell on Oct 29.

In the last reported quarter, the company had delivered a 3.8% positive earnings surprise, while the four-quarter trailing average beat stands at 2.1%. Now let us see how things are shaping up for this announcement.

Earnings Whispers?

Our proven model shows that Visa is unlikely to beat earnings as it lacks the required combination of two key components.

Zacks ESP: The Most Accurate estimate of $2.11 per share is at par with the Zacks Consensus Estimate of Visa. Hence, the Expected Surprise Prediction or Earnings ESP, which is the difference between the aforementioned estimates, is 0.00%.

Zacks Rank: Visa has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions momentum. 

Major Factors Affecting the Past Quarter

Visa operates in an industry bound by stringent regulations and prone to various litigations that raise costs for the company and weighs on margins. Moreover, the company faced an unfavorable verdict in the European Union and Russia during the third quarter, which will likely reduce a key revenue driver, cross-border fees. Though Visa is a leader in the electronic payment processing sector, stiff competition from peers raise the likelihood of an adverse impact on the company's operating leverage.

Conversely, Visa's strong industry position offers ample opportunity to the company in the rapidly growing digital payments' space. The quarter sawstrategic alliances with Apple Pay and other key organizations along with technology upgrades, diversified product portfolio and effective marketing tools, thereby making way strong double-digit revenue growth in the long run. Additionally, the 20% dividend hike initiated last week and accelerated share buybacks boost investors' confidence in the stock, which has nil long-term debt and a strong cash flow position.

Outlook

For fiscal 2014, Visa's top-line growth guidance is in low double digits, including a 2% reduction due to negative impact of foreign currency. Meanwhile, its bottom line is projected to grow in the 17.5–18.5% range in fiscal 2014, lower than 22% growth recorded in fiscal 2013. Assuming no litigation or any significant extraordinary charges, free cash flow will likely outperform the company's target of $5 billion.

While difficult comps were expected to moderate earnings results in fiscal 2014, we foresee healthy growth drivers that should shore up financials in fiscal 2015.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter: 

JAVELIN Mortgage Investment Corp. (JMI) has Earnings ESP of +8.9% and a Zacks Rank #1 (Strong Buy).

Heartland Payment Systems Inc. (HPY) has Earnings ESP of +1.7% and a Zacks Rank #1.

Green Dot Corp. (GDOT) has Earnings ESP of +8.0% and a Zacks Rank #3 (Hold).

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