Visa (V) Up 0.2% Since Last Earnings Report: Can It Continue?

It’s been a month since Visa’s (V) last earnings report. Shares rose about 0.2% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Visa headed for a recession? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Visa’s second-quarter earnings beat volume growth and consumer spending

Visa reported strong results for the second quarter of fiscal 2024, which benefited from growth in payment volume, cross-border payment volume and transactions processed.

Despite challenges such as a high interest rate environment, above-average inflation levels and concerns about an economic slowdown, stable consumer spending and strong e-commerce trends supported Visa’s performance. However, higher operating costs and customer incentives partially mitigated this positive situation.

Earnings per share (EPS) of $2.51 were 3.3% ahead of the Zacks Consensus Estimate of $2.43. The financial result increased by 20% year on year.

Additionally, net revenue increased 10% year-over-year to $8.8 billion in the quarter. The top line exceeded the consensus by 2.1%.

Growth of business factors

Visa payments volume increased 8% year-over-year at constant dollar rates in the fiscal second quarter, driven by expansion into Europe, CEMEA and LAC. Transactions processed (meaning transactions processed by Visa) increased 11% year-over-year to 55.5 billion, exceeding our estimate of 54.7 billion.

On a constant basis, Visa’s cross-border payment volume grew 16% year-over-year in the quarter. Excluding transactions in Europe, cross-border transaction volume (which increases the company’s revenue from international transactions) also increased by 16% year-over-year at constant dollar rates.

Second quarter operating results

Services revenue (based on prior quarter payment volume) of $4 billion increased 7% year-over-year in March as payment volume improved. This figure was slightly different from our estimate of $4.1 billion. The company’s data revenues grew 12% year-over-year to nearly $4.3 billion, matching both the Zacks Consensus Estimate and our estimates.

International transaction revenue was nearly $3 billion, up 9% year-over-year in the fiscal second quarter. The index benefited from growth in cross-border transaction volume, but exceeded consensus by 1.4% and our estimate by 2.3%. Other revenues increased 37% year-over-year to $756 million, surpassing the Zacks Consensus Estimate and our estimates by more than 15% and 18%, respectively.

The story continues

Customer incentives (a revenue offsetting item) increased 12% year-over-year to $3.3 billion in the quarter, but missed both the Zacks Consensus Estimate and our consensus estimate of $3.4 billion. This metric represented 27.1% of the company’s gross revenue of $12 billion.

Visa’s operating expenses increased 29% year-over-year to $3.4 billion in the fiscal second quarter due to higher staffing, marketing, network and processing costs, professional fees and general and administrative expenses. Interest expense of $82 million decreased from $142 million recorded in the same period last year.

Balance sheet (as of March 31, 2024)

Visa ended the March quarter with cash and cash equivalents of $13 billion, down from $16.3 billion at the end of fiscal 2023. Total assets of $92.4 billion increased from $90.5 billion at year-end fiscal 2023.

Visa’s long-term debt was $20.6 billion, up from $20.5 billion at the end of fiscal 2023.

Total equity of $40.5 billion increased from $38.7 billion at the end of fiscal 2023.

Decline in cash flow

During the fiscal second quarter, the company generated net cash from operations of $4.5 billion, up 17.6% year-over-year. Free cash flow is $4.3 billion, up 16.6% year-over-year.

Capital deployment update

In March, Visa paid out $3.8 billion to shareholders through share repurchases ($2.7 billion) and dividends ($1.1 billion). As of March 31, 2024, V had authorized funds of $23.6 billion under the repurchase program.

On April 23, 2024, the board approved a quarterly cash dividend of 52 cents per share to be paid on June 3 to shareholders of record as of May 17.

Fiscal forecasts for the third quarter of 2024

On an adjusted constant dollar basis, net revenues are expected to post low double-digit growth. Operating costs are estimated to increase at the lowest price point on an adjusted constant dollar basis. It expects EPS to reach the upper end of low double-digit growth.

Fiscal 2024 view

Management continues to expect low double-digit net revenue growth in fiscal 2024 in adjusted constant dollars. Operating expenses are expected to experience low double-digit growth in adjusted constant dollars. He also expects EPS to witness growth in the teens.

Amortization of acquired intangible assets is expected to be approximately $180 million, or 7 cents per share. Acquisition-related costs are expected to be approximately $115 million, or 5 cents per share.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month.

VGM results

Visa currently has a weak Growth Score of D, but its Momentum Score is doing much better at A. However, the stock is rated a C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Visa carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Visa belongs to the Zacks Financial Transaction Services industry. Another stock in the same industry, Equifax (EFX), has gained 7.3% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Equifax reported revenue of $1.39 billion, representing a year-over-year change of +6.7%. EPS of $1.50 in the same period compared to $1.43 a year ago.

For the current quarter, Equifax is expected to report earnings per share of $1.79, representing a +4.7% change from the prior-year quarter. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

Equifax carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of C.

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