On Mar 5, we reiterated our Neutral recommendation on
) based on its improving product portfolio and operating leverage
that partly mitigate the regulatory challenges. However, higher
expenses and competition raise caution.
Why the Retention?
Estimates for this electronic payment processor improved since
the company reported its fiscal first-quarter 2013 results on Feb
6. Visa's first-quarter earnings per share and revenue of $1.82
and $2.85 billion, respectively, outpaced the Zacks Consensus
Estimate as well as the year-ago results.
Improved pricing and higher spending increased the number of
processed transactions, which along with higher cross border
volumes continue to drive the top line. These were partially
offset by escalated operating and litigation expenses together
with higher incentives on card transactions. A debt-free balance
sheet and increased free cash flow outlook in fiscal 2013 paves
the way for ample growth opportunities.
However, increasing regulatory compliances and
higher-than-expected litigation charges continue to restrict the
desired upside. The recent $4.4 billion payout against litigation
settlement charges resulted in net operating cash outflow of $2.8
billion in the first-quarter of fiscal 2013. Additionally, the
global payments industry is intensely competitive and continues
to challenge Visa's market share in the future.
Following the release of the first-quarter results, the Zacks
Consensus Estimate for 2013 inched up 0.5% to $7.32 per share in
the last 30 days, wherein 16 out of 27 estimates were revised
upward and one downward revision was witnessed. The Zacks
Consensus Estimate for 2014 also edged up 0.6% to $8.50 per share
with 13 out of 25 upward estimate revisions and one downward
revision in the last 30 days.
With the Zacks Consensus Estimates for both 2013 and 2014
going up slightly, the company now has a Zacks Rank #2 (Buy).
Other Financial Stocks That Warrant a Look
While we see no clear directional pressure on Visa in the near
term, other stocks in the financial sector that are outperforming
). All of these carry a Zacks Rank #1 (Strong Buy).
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