On Dec 23, we reiterated our recommendation on
) to Neutral based on its stable core electronic payment business
growth and capital strength. However, intense competition and
higher expenses augment the operational risks.
Why the Retention?
Estimates for Visa have moderated since the company reported
its fiscal fourth-quarter and full-year 2013 results on Oct 30.
The company's earnings per share of $1.85 were in line with the
Zacks Consensus Estimate, although revenues of $8.3 billion
missed the same benchmark by 1.7%.
However, the top and the bottom line surpassed the year-ago
results by 8.9% and 20.1%, respectively, based on growth in card
spending and strong performance across all segments. Meanwhile
total expenses remained stable at 1% growth, resulting in
improved operating margin of 58.9% from 55.7% in the year-ago
Nonetheless, Visa achieved its financial targets for full-year
of fiscal 2013. However, litigation settlement expenses of about
$4.0 billion deteriorated net operating cash flow to $3.02
billion in fiscal 2013 against $5.0 billion in fiscal 2012.
Following the release of the fourth-quarter results, the Zacks
Consensus Estimate for fiscal 2014 slipped 0.3% to $8.86 in the
last 60 days. Moreover, estimates for fiscal 2015 were pegged at
$10.32 per share, down 0.9% over the same period. Nonetheless, on
a year-over-year basis, earnings are projected to grow 18.5% in
fiscal 2014 and 16.4% in fiscal 2015.
Overall, with the Zacks Consensus Estimate for both fiscal
2014 and 2015 showing no clear directional pressure on the stock
in the near term, the company now has a Zacks Rank #3 (Hold).
Visa's growth is sustained by its consistent healthy product
boutique and huge network expanse. Higher travel spend, expanded
digital commerce efficiencies through strategic acquisitions,
alliances and technical upgrades bode well for long-term growth.
The annual dividend hike and expanded share buyback amid no
long-term debt also elucidate the capital adequacy of Visa,
thereby retaining confidence among investors.
However, management guidance of 11-13% top-line growth,
operating margin in about the low-60% range and bottom-line
growth in mid-to-high teen range for fiscal 2014 reflect the
challenges that Visa projects from regulations, litigations and
Other Financial Stocks That Warrant a Look
While we maintain a neutral stance on Visa in the near term,
better-ranked stocks in the electronic payment sector include
Heartland Payment System Inc.
Higher One Holdings Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
HEARTLAND PAYMT (HPY): Free Stock Analysis
MASTERCARD INC (MA): Free Stock Analysis
HIGHER ONE HLDG (ONE): Free Stock Analysis
VISA INC-A (V): Free Stock Analysis Report
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