Visa’s Leverage Is Stable after Europe Acquisition and Repurchases



Expected decline in leverage

Visa (V) increased its leverage, including current maturities and long-term debt, to $16.4 billion in fiscal 1Q17 against total equity of $31.7 billion in 1Q16. It had a debt-to-equity ratio of 52.0% in 1Q17 compared to no leverage in 1Q16, mainly due to an acquisition of Visa Europe.

The company issued notes at fixed rates of interest between 1.2% and 4.8%, with maturities of two to 30 years. It’s expected to see a reduction in leverage since the company isn’t planning to take additional debt for the next few years. It plans to repay substantially from its operating flows.

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

  • MasterCard (MA): 22.0%
  • Discover Financial Services (DFS): 203.0%
  • American Express (AXP): 513.0%

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

Article continues below advertisement

Visa had cash and cash equivalents and available-for-sale investment securities of $9.6 billion on December 31, 2016. Its total balance sheet stood at $63.0 billion on December 31, 2016, compared to $64.0 billion in fiscal 4Q16. The company generated an operating cash flow of $5.6 billion in fiscal 2016. Visa deploys cash flows for new investments, repurchases, payouts, and expansion plans.

Repurchases continue

During 1Q17, Visa repurchased 22.3 million shares of its common stock at an average price of $79.77 per share, using $1.8 billion of its cash on hand. In fiscal 2016, it bought back 92.1 million shares of its common stock at an average price of $77.13 per share, totaling $7.1 billion.

The company had another $3.9 billion authorized by its board for share repurchases under its current programs. It’s expected to increase its allocation for repurchases in 2017, considering strong operating performance and cash flow generation.

In the next part, let’s take a look at Visa’s high operating margins in fiscal 1Q17.


More From Market Realist