Visa stock (NYSE: V) is up approximately 22% year-to-date compared to a 23% rise in the S&P500 index over the same period. Visa peer Mastercard (NYSE: MA) has returned about 23%. So what are some of the factors driving Visa stock’s performance of late?
The company outperformed the street estimates in the fourth quarter of FY 2024. It reported net revenues of $$9.6 billion, up 12% year-over-year. A couple of factors are driving growth for Visa. For one, cross-border volumes rose 13% year-over-year led by higher international travel as well as e-commerce growth. Total Processed Transactions, which refers to the transactions processed by Visa, were up by about 10%. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Earnings have also been trending higher with adjusted net income up by 13% year-over-year to $5.4 billion. Visa’s business model has high operating leverage, given the company’s expansive networks as well as high fixed costs and relatively lower variable costs compared to revenue. This means that profits can expand at a quicker pace compared to revenues. Visa’s Adjusted EPS rose by a stronger 14% due to a reduced sharecount, amid stock buybacks.
The decrease in V stock over the last 4-year period has been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were 0% in 2021, -3% in 2022, and 26% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. So what’s the outlook like for Visa stock?
Visa stock has seen some regulatory headwinds this year. The U.S. Justice Department accused Visa of illegally operating a monopoly in the debit market in the U.S. by unfairly suppressing competition. This was seen as a big setback for the company, which is the largest debit card player in the U.S. Moreover, the U.S. debit card business accounted for over 20% of the company’s global transactions. However, the stock has rebounded strongly since September as investors likely don’t see the issues as impacting Visa stock in the long run. For instance, the company could make some tweaks to operations in the U.S. debit market to promote more competitive behavior allowing it to continue business as usual.
Moreover, the election of Donald Trump to the U.S. Presidency could signal an easier regulatory environment for financial players and there is a possibility that the antitrust climate could also ease. Separately, the Federal Reserve has also cut interest rates three times since September, and lower rates could likely drive consumer spending to an extent. This could reduce borrowing costs and in turn help drive up Visa’s transaction volumes. Visa has been doubling down on its shareholder returns. Share repurchases and dividends stood at $6.8 billion over the fourth quarter. Visa also recently raised its quarterly cash dividend by 13% to $0.59 per share We value Visa stock at about $309 per share, which is roughly in line with the current market price. See our analysis of Visa’s valuation for more details.
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