Visa Inc (VA): Solid Results Top-To-Bottom – ValueWalk Premium

Visa Inc (VA): Solid Results Top-To-Bottom

Visa Inc (NYSE:V) reported fiscal second-quarter results that topped Wall Street earnings and revenue estimates.

The world’s largest payment network said its operating revenue increased 14.7 percent to $2.96 billion as payments volume increased 8.8 percent to $1.03 billion on a constant-dollar basis.

Visa Inc (VA): Solid Results Top-To-Bottom

Enthused by the results, Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) assigned a ‘buy’ rating on Visa Inc (NYSE:V).

In its recent market research report, Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) observed V’s 2Q13 revenues of $2.96 billion and EPS of $1.92 significantly beat their estimates of $2.86 billion and $1.77 on broad-based revenue growth. The top-line growth was aided by solid volume and transactions, certain one-time items, and lower-than-expected incentives. Besides, U.S. debit volume and transactions accelerated in April as the impact of Durbin amendment anniversaried and U.S. credit volume sustained solid momentum.

Bryan Keane and his colleagues point out that data processing revenue grew 24.7 percent y/y on 6.2 percent transaction growth due to one-time true-up of the FANF fee. They anticipate the payment volume to increase to 11.3 percent and transactions to grow 13.4 percent in 3Q13 with acceleration in U.S. debit volume and moderation of the headwinds to the ROW volume.

Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) analysts note that Visa’s improved operating metric could be ascribed to Visa continuing to gain back the debit share lost due to Durbin Amendment besides maintaining a leadership position in the U.S. credit market. They also point out that multiple factors such as: 1) Visa raising FY 13 guidance, 2) lowering client incentive guidance, 3) enhanced service fee of $1,369 million as against DB’s expectation of $1,392 million, 4) improved data processing fee of $1, 150 million versus DB’s expectation of $1,118 million would augur well for the shareholders.

The market research report also notes that with better-than-expected margins, the analysts have modeled 50 bps of margin improvement in FY 13 to 60.4 percent. Besides the Visa-Chase deal could lead to some short-term margin pressure from pricing discount. However, Visa Inc (NYSE:V) expects the deal to be accretive as the increased volume would offset the pricing discounts.

With Visa Inc (NYSE:V) affirming FY 13 revenue guidance of low-double-digit revenue growth, analysts at Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) predict a $177 target price based on 20x their CY14 EPS of $9.06. They feel a premium is warranted due to Visa Inc (NYSE:V)'s two-year P/E average given double-digit revenue growth, about 20 percent EPS growth and limited risk from regulation and litigation settlement. However some of the risks anticipated by the analysts include a slowdown in purchase transactions, volumes, share loss to Mastercard Inc (NYSE:MA), and DOJ inquiry.


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