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Why You Should Buy Any Weakness After Visa's Q1 Report

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Why You Should Buy Any Weakness After Visa's Q1 Report

Shares of Visa Inc (NYSE: V) extended its losses from Thursday as it fell about 4 percent in the pre-market hours after the payments network firm cut its full-year revenue outlook on low cross-border spending. But, a Goldman Sachs analyst suggests that investors should cash in on any weakness in the shares.

Visa now sees its full-year revenue to grow between 7 percent to 8 percent, down from its previous guidance of high single-digit to low-double digit.

"The U.S. consumer remains strong, but we see weakness in China, Brazil, and oil based economies. Since we are not seeing any material improvements in economic trends, we are cautious as we head into the second half of fiscal 2016," Charlie Scharf, chief executive officer of Visa, said in a statement.

Related Link: Citi Raises Target On PayPal Ahead Of Wednesday's Q1 Results

Buying On Weakness

However, Goldman Sachs analyst James Schneider recommends investors to buy on any weakness following the report as he sees Visa's "structural opportunities as unchanged."

Schneider highlighted that Visa's U.S. volumes remain strong moving through April, and the company's cost controls is offsetting the negative impact from cross-border weakness.

Further, the analyst sees multiple drivers for the stock, including share gains with portfolio wins at Costco, USAA and Fidelity; long-term market expansion in Europe; and potential entry into the China's domestic market.

"We reiterate our CL-Buy as we believe Visa's balance of defensive growth, high returns and strong balance sheet should allow it to outperform, even in a difficult macro environment," Schneider added.

On a constant-dollar basis, Visa expects adjusted earnings per Class A share to grow in low single-digits, versus its earlier forecast of low-end of mid-teens. The analyst, however, cut his FY16 EPS estimate to $2.85 from $2.92, while the Street expects earnings of $2.80 a share for the full year.

But, Schneider raised the price target on the stock to $97 from $86. According to TipRanks, Schneider has a success rate of 61 percent with an average return per recommendation of +12 percent. The analyst is ranked 432 out of 3,907 analysts.

Visa reported adjusted earnings of $0.68 per share, beating the Street's consensus of $0.67 per share. Revenue of $3.63 billion also came in $30 million above expectations.

Other News

Separately, Visa announced a swap in its earn-out option in its deal to buy Visa Europe for higher cash consideration, after a feedback from the European Commission.

Instead of an earn-out, Visa raised the cash consideration by €1.75 billion. As such, Visa said €750 million payable upon closing, and €1.0 billion along with 4 percent interest, payable on the third anniversary of closing.

In a press release, Visa said, "While the parties continue to work toward closing as soon as possible, closing could extend beyond the end of the Company's fiscal third quarter."

Shares of Visa closed Thursday's regular trading at $80.83 and were down more than 2 percent minutes after Friday's opening bell, trading at $78.75.

Latest Ratings for V

DateFirmActionFromTo
Jan 2021Credit SuisseMaintainsOutperform
Jan 2021BernsteinReinstatesOutperform
Jan 2021KeyBancDowngradesOverweightSector Weight

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TMSTKeyBancMaintains12.0
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