It has been about a month since the last earnings report for Visa Inc.V . Shares have added about 7.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Visa Tops Q1 Earnings & Revenues, Reiterates FY17 View
Riding on higher revenues, Visa posted first-quarter fiscal 2017 (ended Dec 31, 2016) earnings per share of $0.86 per share, handily beating the Zacks Consensus Estimate of $0.78. Also, the bottom line improved 7% year over year.
Results were driven by the acquisition of Visa Europe and solid growth in payments volume as well as processed transactions. Notably, USAA and Costco volumes continued to drive the U.S. credit growth. However, on the down side, the quarter witnessed higher expenses.
Net income of $2.1 billion in the quarter climbed 7% from the prior-year quarter.
Excluding non-recurring items, net income for first-quarter fiscal 2017 jumped 23% from the prior year's adjusted results.
Alfred F. Kelly, Jr., Chief Executive Officer of Visa stated, "As we look ahead, we continue to see good momentum in the business driven by domestic and cross-border volumes, increasing consumer participation in electronic payments in developing markets, and the further acceleration of e-commerce in developed markets." Kelly added, "We remain focused on the integration of Europe which is proceeding well."
Visa Europe Acquisition Drives Revenues
Net operating revenue of $4.5 billion surpassed the Zacks Consensus Estimate of $4.3 billion. Also, revenues climbed 25% year over year. This upside was primarily driven by the acquisition of Visa Europe and consistent growth in payments volume and processed transactions.
On a constant dollar basis, payments volume growth for the reported quarter surged 39% year over year to $1.8 trillion. Cross-border volume growth was 140% for the quarter ended Dec 31, 2016. Cross-border volume growth, on a constant dollar basis when normalized for Europe, was 12% year over year.
Total processed transactions for the reported quarter were 27.3 billion, reflecting a 44% rise over the prior year. When normalized for Europe, total processed transactions growth was 13% over the prior year.
Service revenues increased 17% year over year to $1.9 billion on payments volume in the prior quarter. Notably, other revenue components are based on reported quarter activity. Data processing revenues were up 28% on a year-over-year basis to $1.9 billion, while international transaction revenues surged 44% to $1.5 billion. Other revenues advanced 2% year over year to $203 million.
Client incentives of $1 billion represented 18.9% of gross revenues in the reported quarter.
Operating expenses increased 16% year over year to $1.4 billion mainly reflecting the inclusion of Visa Europe and higher personnel, marketing, and general and administrative expenses.
Cash, cash equivalents, and available-for-sale investment securities were $13.2 billion as of Dec 31, 2016. Total assets of $64 billion remained largely stable with prior quarter. Total equity was $32 billion compared with $33 billion as of Dec 31, 2015.
Share Repurchase Update
Visa repurchased 22.3 million shares of class A common stock at an average price of $79.77 per share, during the reported quarter.
For fiscal 2017, Visa largely reaffirmed its guidance. Annual operating margin is anticipated at mid-60%, while client incentives are expected to account for 20.5%-21.5% of gross revenue. Additionally, effective tax rate is reiterated at low 30s.
Visa projects annual net revenue growth in a range of 16-18% with an adverse foreign currency impact of 2-2.5%. Adjusted earnings per share is expected to grow at mid-teens digit on normal dollar basis, including 2.5%-3% of negative foreign currency impact.
This outlook for 2017 includes integration expenses associated with the Visa Europe buyout of about $80 million.
For second-quarter fiscal 2017, the company expects sustained payment volume growth. The strengthening of the dollar could impact cross-border growth to some extent.
As several deals will shift into the second quarter from the first quarter, client incentive spend will increase. The company expects client incentives as a percent of gross revenues to be within its guidance range of 20.5% to 21.5%.
On a sequential basis, expense growth rates are expected to be higher as the company will beef up spending in Europe, and delayed initiatives in technology and marketing shifts into the second quarter.
Management noted that business fundaments remains strong, particularly cross-border growth, however the strengthening of the dollar and the weakening of the Euro are headwinds.
Further, the company sees strong opportunities in India. Notably, on Nov 8, 2016, the Indian government declared the two largest denomination bills invalid, thereby withdrawing around 86% of the circulating cash by value. The move encourages digital transactions in India. Since a very small part of the merchant community in India is able to accept electronic or digitized payments, Visa is focused on capitalizing on this opportunity and investing heavily to drive awareness for consumers and incentive for attracting merchants. Management noted that the investments, along with a fairly conservative pricing, is not likely to generate significant profit in the current fiscal year, however, it sees substantial potential in the long run in India - one of the largest population countries in the world.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been two revisions higher for the current quarter compared to eight lower.
Visa Inc. Price and Consensus
At this time, Visa's stock has a nice Growth Score of 'B', whileit is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable solely for growth investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.
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