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Visa Commanding Premium Valuations on Expected Growth in 2017

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Leading the industry

Visa (V) stock has risen 8.3% over the past six months and 15.6% over the past year. The rise was mainly due to higher spending, expansion through Visa Europe, and further penetration in Asia.

The company saw adjusted net income growth of 23.0% in fiscal 1Q17. Its net operating income expanded 25.0% to $4.5 billion with higher operating margins.

Visa has consistently rewarded its shareholders through dividend and share buybacks. In fiscal 1Q17, it declared a quarterly dividend of 16.5 cents per share, compared to 14.0 cents per share in 1Q16. The company’s dividends paid translated into an annualized dividend yield of 0.78%.

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

  • American Express (AXP): 1.6%
  • Discover Financial Services (DFS): 2.1%
  • MasterCard (MA): 0.80%

Together, these companies form 2.5% of the Technology Select Sector SPDR ETF (XLK).

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Premium valuations

Visa is trading at ~21.3x on a one-year forward earnings basis. Its peers are trading at an average of 16.4x. Historically, the company has commanded a premium, mainly due to its strong brand, high growth, diversified performance, and balance sheet.

Visa remains a leading performer in the United States due to its payment volumes, added partnerships with USAA and Costco (COST), and a marginally lower negative impact of the US dollar. Visa’s operating cash flow was $5.6 billion in fiscal 2016. Its operating margin in the year was 66.0%.

For fiscal 2017, the company expects a 16%–18% rise in revenue in dollar terms. That reflects a global growth due to a stable macroeconomic outlook and new avenues of growth, including India and China.

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

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