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