Wells Fargo Bullish On Visa Inc (NYSE:V) Ahead Of FQ1 Earnings

Visa Inc (NYSE:V) will report its December quarter (FQ1) earnings on Wednesday after the bell, with a conference call scheduled at 5 p.m. ET. Visa is the world’s leading credit card services company with an estimated market cap of $105 billion. Its close competitors include Mastercard Inc (NYSE:MA) and American Express Company (NYSE:AXP), which have market caps of about $65 billion each.

Wells Fargo Bullish On Visa Inc (NYSE:V) Ahead Of FQ1 Earnings

Visa Inc (NYSE:V) has experienced high growth rates in revenue and earnings since going public in 2008 with a compounded annual revenue growth rate of 13.5 percent, while earnings have increased at a rate of 34 percent. Visa’s competitors reported their earnings in January, with American Express modestly beating analyst estimates despite hefty restructuring charges that inflicted a decline of 47 percent on earnings before adjustments. Mastercard Inc (NYSE:MA), which reported on January 31, also blew analyst estimates in its December quarter earnings with revenues rising 9.7 percent year-over-year.

This lays down the gauntlet for Visa Inc (NYSE:V) to try and emulate its peers by beating analyst estimates in its December quarter earnings, or better still, go a step further. Nonetheless, this does not seem to be a toll order for Visa. Analyst estimates already suggest significant revenue and earnings growth rates for the Credit services company, with some expecting the company to modestly beat analyst estimates for FY results.

In a report published Tuesday, February 5, Wells Fargo & Company (NYSE:WFC) analysts, Timothy Willi and Robert Hammel expressed their optimism in Visa Inc (NYSE:V), reiterating the stock at Overweight. The analysts also believe that Visa will blow analyst estimates for the December quarter, but will deliver a close to in-line results for the full year earnings.

In the report, the analysts wrote, “Our revenue and EPS estimates are $2.843 billion and $1.84, respectively, above consensus estimates of $2.818 billion and $1.79. That being said, our FY2013 EPS estimate of $7.29 is largely in-line with the consensus estimate of $7.27. The key assumptions that underlie our revenue estimate for FQ1 2013 are: (1) 3.5% growth in processed transactions; (2) 25% growth in CyberSource transactions; (3) 8% growth in international transaction revenue; (4) 7% growth in other revenue; and (5) $603 million in client incentives, representing 17.5% of gross revenue”.

The analysts project U.S volume growth of 2 percent with 10 percent growth for credit and a 4 percent decline in debit, which is an improvement from a 6 percent and 10 percent decline during the previous two quarters. Internationally, payments volumes are expected to grow by about 10 percent, the base currency being the US dollar. This would translate into a total of $1.054 trillion in payments for the December quarter, or 6 percent increase, year-over-year.

The analysts expect operating expenses to grow by 15 percent slightly above the revenue growth rate of 12 percent. The net effect on operating margin is a decline from 63.5 percent to 62.6 percent. The analysts also pointed out some key areas to look for, as noted below.

(1) Progress in US debit market–although we still anticipate a decline in US debit PV for the December quarter, a 4% decline would be an improvement from the last 2 quarters;

(2) Cross-border spending growth–MA noted some acceleration in cross-border spending; for V we are modeling international transaction revenue growth to accelerate to 8% from 5% during the previous quarter; and

(3) Payment volume trends in international markets–MA reported flat or accelerating growth in each region; will V see the same trends?

The analysts concluded with a positive view on Visa Inc (NYSE:V) shares expressing an optimism that the company could easily grow EPS at rate of between 15-20 percent. This growth would be driven by net revenue growth in the upper single to low double-digit range, modest margin expansion, and redeployment of capital for share buyback.


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