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Visa Sizzles on Strong Digitization Trends and Improving Economy

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Price performance

Visa stock (V) has sparkled over the last one and half years. The stock, which was around $78 at the beginning of 2017, now trades close to $143, a jump of over 83%. Year-to-date, Visa stock has returned ~25%, much better than the iShares U.S. Financial Services ETF (IYG) and the SPDR S&P 500 ETF (SPY), which are up 5.6% and 8.3%, respectively.

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What’s driving the stock?

The remarkable run is primarily attributable to the company’s back-to-back quarters of stellar financial performances. Visa’s revenues and earnings per share (or EPS) have topped the Wall Street estimates in the last eight quarters and seen a significant YoY improvement.

In its latest results for third-quarter fiscal 2018, reported on July 25, the company posted EPS of $1.20, which came in ahead of the Wall Street estimate of $1.09 and registered a year-over-year jump of ~40%. Revenues for the second quarter grew ~15% YoY to $5.24 billion and handily surpassed the Wall Street expectation of $5.09 billion.

Furthermore, an improving US economy, as reflected by the continuous rise in GDP, is benefiting the company. In the second quarter, the US GDP grew 4.1%. Additionally, a healthy job market, steady wage growth, robust consumer confidence, and increased cash in consumers’ hands due to a lower tax rate has been driving the digital payment volume. As Visa earns fees from every digital transaction made through its platforms, the factors mentioned above are driving its top-line and bottom-line results.

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The steady adoption of digital payment solutions across emerging economies such as India, Brazil, and Mexico is also aiding the growth, as the governments there are focusing on developing card acceptance infrastructure. Mobile and Internet penetration and integration of the same with e-commerce have changed the landscape of the payments marketplace.

What’s ahead?

These factors are anticipated to continue driving Visa’s revenues and EPS. For the fourth quarter of 2018, analysts expect the company to report revenues of $5.43 billion, signifying YoY growth of ~12%. EPS are projected to increase by ~41% YoY and come in at $1.20.

Wall Street’s current quarter EPS expectations for Mastercard (MA), American Express (AXP), and Discover Financial Services (DFS) are $1.68, $1.76, and $2.04, respectively. Estimates for the current quarter signify a YoY increase of 25%, 17.3%, and 35% for the respective companies.

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