What Led to Visa’s Premium Valuations?
Visa’s (V) price-to-earnings (or PE) ratio on an NTM (next-12-months) basis stood at 26.3x. Visa’s peers have an average PE ratio on an NTM basis of ~19.4x, which highlights Visa’s premium valuations.
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Visa’s higher valuations are primarily due to its outlook on the digital economy. During the recent UBS Global Technology Conference, Visa’s CFO, Vasant M. Prabhu, indicated that the company has reached its inflection point. He added that this could be a possible indicator for its long-term growth.
Growth backed by e-commerce
Visa’s (V) management noted that growth in e-commerce is expected to continue. In another conference held on November 29, 2017, the company’s management stated that improvements in technology could enable a variety of opportunities in the digitization field.
Wall Street analysts have given a high estimate of earnings per share (or EPS) for Visa of $1.14 for fiscal 1Q18 and a low estimate of $0.95. These analysts gave an average estimate of $0.98 on its EPS for the same period.
An average estimate implies a marginal rise in EPS of $0.90, which the company reported in fiscal 4Q17. This estimated rise could be the primary reason for the company’s higher valuations.
On an LTM (last-12-months) basis, Visa has a price-to-book ratio of ~7.6x. Its peers (XLF) Total System Services (TSS), Fidelity National Information Services (FIS), and Vantiv (VNTV) reported price-to-book ratios on an LTM basis of ~5.7x, ~3.1x, and ~23.0x, respectively.