After listening to Visa’s (V) CFO, Vasant Prabhu, give the keynote address at the UBS Global TMT Virtual Conference on December 8th, 2021, I am convinced that this company is set for a long bull run.
Prabhu laid out Visa’s plans that it has been executing for several years to become a “network of networks” so that any person or company can send money via the Visa credential anywhere in the world. The plan is impressive.
In addition to the current acquisitions that Visa is pursuing (Tink and Currency Cloud), the company can now send money through 66 different networks around the globe and its own. That is the most of any transfer agent in the world.
As a consumer, it also means that Visa is accepted more places than ever before, especially internationally.
I am also very excited about the two acquisitions mentioned above. The $2.2 billion acquisition of Tink, the Swedish open banking fintech company, will allow Visa to play a significant role in the open banking initiative that regulators are currently pushing in Europe.
The acquisition of Currency Cloud will also facilitate cross-border transactions as the Currency Cloud now has a sizeable foreign exchange presence that Visa was lacking (according to Prabhu).
Prabhu also described the structural changes in how people shop because of COVID-19. He said that Visa has seen travel-related charges decline significantly (because people cannot travel). He expects the pent-up demand to more than make up for any short-term losses that Visa experiences.
He also said that Visa has seen more transactions through its network from online purchases and that these purchases are not slowing down as more stores open for in-person shopping. Prabhu believes that the pandemic has increased the speed at which people are transitioning to shopping online permanently, which will benefit Visa in the long run.
Recent Results and Dividend
Visa’s stock has been trading between $190.10 (the 52-week low set on December 1, 2021) and $252.67 (the 52-week high set on July 27, 2021).
Visa brought in revenues of $24.1 billion over the last twelve months with a net income of $12 billion.
The company has reported fourth-quarter earnings of $1.62 per share, beating analyst estimates of $1.55 per share by $0.08. It has also reported $5.91 in non-GAAP earnings per share for 2021, beating analyst estimates of $5.4 for the same period.
Visa currently pays a dividend of $0.38 per quarter for a yearly dividend yield of 0.7%. The dividend has also been growing every year for the past 13 years. While these are good numbers and excellent qualities of a growth stock, I would not consider this a must-have for an income portfolio.
The current dividend factors a 15% increase in the dividend rate over the past year. This is a desirable feature that income investors should pay attention to. If this continues for another year or possibly two, I will change my previous statement and say this will become an excellent addition to an income portfolio.
The company has a solid set of financial statements. Visa has a current ratio of 1.75, so it has enough current assets on hand to pay its bills for the next year and three quarters at its current burn rate.
When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $283. This stock has quite a lot of room to increase share price before the market value catches up with the stock’s intrinsic value.
Wall Street’s Take
Turning to Wall Street, Visa stock earns a Strong Buy consensus rating based on 13 Buys and two Holds assigned in the past three months. Additionally, the average Visa price target of $267.13 puts the upside potential at 24.4%.
Of the 60 bloggers that have blogged about Visa in the last three months, 93% of them are bullish, while the sector average is approximately 71% bullish on the financial sector.
Conclusion
Based on the intrinsic value of this stock, the Wall Street analyst’s estimates, blogger estimates covering Visa, I am bullish on this stock. I believe the “network of networks” strategy that Visa is pursuing will continue to carry it on the forefront of moving money around the world for many years to come.
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