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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 8
Visa's 2017 Growth to Ride on Emerging Markets and US Spending PART 8 OF 9

Why Visa Is Trading at a Premium

Relative outperformance

Visa (V) stock has risen 9.7% over the past six months and 25.7% over the past year. The rise was mainly due to higher payment volumes, Europe entity acquisition, entry in newer markets, and further penetration in Asia. In fiscal 1Q17, the company’s adjusted net income rose 23%, and net operating income expanded 25% to $4.5 billion with higher operating margins.

Why Visa Is Trading at a Premium

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Visa has consistently rewarded its shareholders via dividends and share buybacks. The company declared a quarterly dividend of 16.5 cents per share in fiscal 1Q17 compared to 14.0 cents per share in the previous year. The company’s dividends paid translated into an annualized dividend yield of 0.73%.

Visa’s competitors in the payment processing industry have the following dividend yields:

  • American Express (AXP): 1.6%
  • Discover Financial Services (DFS): 1.7%
  • MasterCard (MA): 0.78%

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

Premium valuations

Visa is trading at ~23.3x on a one-year-forward earnings basis. Its peers are trading at an average of 17.2x. Historically, the company has commanded a premium due in part to its strong brand, global presence, innovative offerings, high growth, and a strong balance sheet.

Visa remains a strong performer in the US due to its payment volumes and its added partnerships with USAA and Costco (COST). The company generated $5.6 billion in operating cash flows, reflecting strong operating capabilities.

For the current year, the company expects a 16%–18% rise in revenue in dollar terms helped by stable global growth, a positive macroeconomic outlook, and higher penetration in emerging markets.

In the next and final part of the series, we’ll study analysts’ ratings for Visa in 2017.

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