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Visa's 2017 Growth to Ride on Emerging Markets and US Spending

PART:
1 2 3 4 5 6 7 8 9
Part 7
Visa's 2017 Growth to Ride on Emerging Markets and US Spending PART 7 OF 9

Visa Expected to See Lower Leverage and Repurchases in 2017

Leverage and capital strength

Visa (V) took a long-term debt of $16.5 billion for the acquisition of Visa Europe in 2016. The company had a debt-to-equity ratio of 52% in fiscal 1Q17 with outstanding debt of $16.4 billion and total equity of $31.7 billion as of December 31, 2016.

Visa issued notes at fixed rates of interest between 1.2% and 4.8% with maturities ranging from two to 30 years. The company is expected to see lower leverage in 2017, as it isn’t planning to take additional debt for the next few years.

Visa Expected to See Lower Leverage and Repurchases in 2017

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Let’s look at the leverages of some of Visa’s competitors in the payment processing industry:

  • MasterCard (MA): 92%
  • Discover Financial Services (DFS): 225.0%
  • American Express (AXP): 526%

Together, these companies form 2.4% of the Technology Select Sector SPDR ETF (XLK).

Visa also has strong liquidity of $9.6 billion in the form of cash and equivalents and investment securities as of December 31, 2016, which provides enough room for medium-term expansion plans. The company’s balance sheet total assets stood at $63 billion as of December 31, 2016. Visa generated operating cash flows of $5.6 billion for fiscal 2016. It’s expected to see cash flows of $7 billion in fiscal 2017.

Repurchases amid high prices

Visa has consistently bought back its shares in fiscal 2016 by deploying $7.1 billion for a total of 92.1 million shares. The company has authorization for $3.9 billion in additional share repurchases, which is expected to be utilized in 2017. During fiscal 1Q17, Visa repurchased 22.3 million shares at an average price of $79.77 per share, deploying $1.8 billion of its cash on hand. The company could authorize further repurchases considering the smooth integration of European operations and improving operating performance.

In the next part, let’s study Visa’s high operating margins in the recent quarter.

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