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Why Visa Has Premium Valuations

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Higher valuations

Visa’s (V) price-to-book ratio stands at 6.83x on a next-12-month basis, implying a premium valuation compared to its peer average of 3.09x. The company’s competitors Fiserv (FISV), Discover Financial Services (DFS), and Synchrony Financial (SYF) have price-to-book ratios of 5.50x, 2.15x, and 1.62x, respectively, on a next-12-month basis.

Visa currently has higher valuations mainly because of its recent initiatives to promote digital payments. Moreover, the company’s expected earnings per share for the March 2018 quarter reflect a year-over-year rise, which could be another reason for its high valuation.

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What could negatively impact Visa’s valuations?

The Trump administration’s decision to levy tariffs could result in increased inflation, and Visa’s revenue could be positively impacted. Lower taxes could also benefit the company, allowing it to make more deployments. However, in fiscal 2018, trade war fears could lead to declining momentum in Visa’s cross-border volumes.

Visa is witnessing tough competition from India’s UPI (Unified Payment Interface), which is resulting in a fall in its market share in India. The company sees strong potential in India’s payments market, so dilution in this market share could negatively affect its valuation.

Visa’s price-to-book ratio stands at 7.91x on a trailing-12-month basis. Its peers (XLF) Fiserv, Discover Financial Services, and Synchrony Financial have price-to-book ratios of 10.64x, 2.30x, and 1.76x, respectively, on a trailing-12-month basis.

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