Here’s What’s behind Visa’s Premium Valuations



Favorable outlook

Visa (V) has higher valuations since its PE (price-to-earnings) ratio on an NTM (next 12-month) basis is 26.27x, which is higher than the peer average. Visa’s competitors Total System Services (TSS), Fiserv (FISV), and Vantiv (VNTV) have PE ratios on an NTM basis of 20.78x, 22.63x, and 19.39x, respectively. The average is 20.93x.

Despite Visa’s higher valuations, market participants may still be planning to take a long position on the stock. After a strong fiscal 2017, which is the main reason for its higher valuations, Visa is all set to outperform its competitors in fiscal 2018.

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Increase in quarterly payout

Another factor that could prompt investors to invest in Visa is its quarterly payout. The company declared a quarterly dividend of $0.195 per share in October 2017, which was paid in December 2017. In July 2017, the company announced a quarterly dividend of $0.165 per share. The rise could help the company attract investor attention.

Since smartphones are now treated as a mode of making and accepting payments, payment technology companies could benefit in 2018, thus pushing valuations higher.

On an LTM (last 12-month) basis, Visa posted a return on invested capital of 15.2%. Its peers (XLF) Fiserv (FISV), Vantiv (VNTV), and Total System Services (TSS) had returns on invested capital of 11.44x, 7.68%, and 8.8%, respectively.


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