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Visa to Gain From Strong Spending and Balance Sheet Position

Visa Inc. 's V business have been gaining from the strong U.S macroeconomic fundamentals, increasing retail sales and strong consumer spending that led to an increase in payment volumes, aiding the company's top-line growth.

The company's continuous investments in technology, numerous partnerships and tie-ups, and the completion of integration of Visa Europe also aided fiscal 2018 results.

Visa's strong operating performance, coupled with its sound balance sheet, helped it gain a thumbs up from the rating agency S&P. The agency has upgraded the company's long-term rating to AA-minus from A-plus on Tuesday.

The rating agency expects Visa's strong operating performance to continue for the next few years, given its low leverage, strong positioning in key markets and a long-term global increase in electronic payments.

S&P ratings acknowledges Visa's track record of increasing its revenues and EBITDA at a roughly double-digit compound rate for at least a decade despite regulatory and legal hitches. Its revenues have witnessed a CAGR of 12.5 during 2008-2018.

In a year's time, the company's stock gained 19% compared with the industry 's growth of 14%.

We strongly believe that Visa should retain its revenue momentum over the next several quarters on the back of its strong market position and attractive core business that continues to be driven by new deals, renewed agreements, accretive acquisitions, increasing spending via cards, shift to digital form of payments and expansion of service offerings. Management expects net revenue growth to be in the low double digits in fiscal 2019.

These Factors Should Aid the Stock Further

Revenue Growth:

Synergies from Visa Europe Acquisition: The integration of Visa Europe acquisition (made in 2016) is almost complete. This deal opens Visa's door for $3.3-trillion payments market in Europe. Recently the company announced that cumulative EPS accretion is over 10%, two years ahead of expectations. We believe that Visa Europe is likely to be long-term earnings contributor to the company.

Strong International Business: The company sees substantial opportunity in Germany, which is still cash-centric. Further, in Russia, the company has a huge presence. China represents a long-term opportunity, with its payments industry now opening up. India's payments markets have grown in past years and will continue to do so. The company is also optimistic about business growth from the Olympics 2020, which is going to be in and around Tokyo. Its strong international operations led to an increase in cross-border transaction for the last many quarters. We expect the trend to continue going forward. The company expects international payments volume growth to stay strong and stable in 2019.

Investment in Technology: Visa continues to invest in technology to further increase its already leading position in the payments markets and to minimize the impact of fraud, and protect consumer and merchant information. VisaNet, Visa Token Service, Visa Direct, Visa Checkout are some of the platforms that have been developed by the company in recent years to advance its digital platform. The company is also pushing technologies, including contactless and scan-to-pay, blockchain, mobile, which should be one of the main modes of payments in the near future.

Strong Balance Sheet Position: Visa has been able to generate positive cash flows from operations, which enables it to deploy cash for business growth. Backed by its strong cash position, the company remains committed to boost shareholders' value. Visa has increased its dividend each year since 2009, with the latest being an 8% hike announced in February 2018.

Visa currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Envestnet, Inc. ENV , Green Dot Corporation GDOT and Cardtronics PLC CATM . While both Envestnet and Green Dot sport a Zacks Rank #1 (Strong Buy), Cardtronics carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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