Visa Inc. (NYSE:V) is set to announce its third-quarter fiscal 2024 results on July 23, 2024, after market close. The company’s performance is likely to be bolstered by increasing Gross Dollar Volume, transactions, and payment volumes.
Key Estimates and Projections
The Consensus Estimate for Q3 earnings stands at $2.41 per share, marking a robust 11.6% growth from the same period last year. This estimate has remained stable over the past week. For revenues, the consensus estimate is pegged at approximately $8.9 billion, indicating a 9.7% increase from the previous year.
Visa has a strong track record of exceeding earnings estimates, having done so in each of the last four quarters with an average beat of 3.4%.
Factors Influencing Q3 Results
Visa’s Q3 performance is expected to benefit from increased payments and cross-border volumes. The growing adoption of digital payment methods is also likely to contribute positively. The Consensus Estimate forecasts a more than 5% rise in total Gross Dollar Volume from the previous year, with our model predicting a 7% increase.
As Visa generates revenue as a percentage of transaction value for each debit/credit card payment, higher spending translates to more transaction processing fees. The Consensus Estimate for Q3 total processed transactions indicates a 9.1% year-over-year growth, while our model predicts a 10% increase.
The consensus estimate for total payment volumes suggests an 8.1% year-over-year increase, with our model estimating a 7% growth. We expect U.S. operations to show a 6% year-over-year increase, with Latin America and CEMEA regions expected to grow by 17.5% and 20.3%, respectively.
For data processing revenues, the consensus estimate predicts a 10.6% growth from last year’s $4.1 billion, while our estimate suggests a 12.1% increase. The consensus for service revenues indicates an 8.1% year-over-year growth, with our model projecting a 9% rise.
International transaction revenues are expected to grow by more than 11% year-over-year, with our model forecasting a 9% increase, supported by growing cross-border volumes.
While these factors position Visa for strong year-over-year growth, rising expenses and client incentives could partially offset the positive impact. We expect adjusted total operating expenses to increase by 13% year-over-year due to higher Personnel, Marketing, Professional Fees, and Network and Processing expenses. Both the Consensus Estimate and our model estimate client incentives to be around $3.6 billion for Q3.
Price Performance & Valuation
Visa’s stock has risen 3.4% year-to-date but has underperformed compared to the industry’s 6.4% gain. In contrast, competitors like Mastercard Incorporated (NYSE:MA) and American Express Company (NYSE:AXP) have increased by 5.2% and 33.3%, respectively, over the same period. Visa’s stock also lagged the S&P 500, which rallied 16.1%.
Currently, Visa’s valuation appears stretched, trading at 24.83x forward 12 months earnings, above the industry average of 22.4x. Mastercard trades at 29.09x forward earnings, while American Express offers better value at 17.77x forward earnings.
Investor Considerations
Visa has benefited from resilient consumer spending and e-commerce trends, driving rapid growth. However, revenue growth has recently slowed to single digits. The depletion of pandemic-era savings and the slowdown in real disposable income growth could constrain spending on big-ticket items and discretionary areas like entertainment, travel, and dining out, potentially limiting Visa’s short-term performance.
Despite these challenges, Visa’s strong market presence, robust financials, transaction growth, and technological innovation position it well for long-term growth. However, potential regulatory hurdles, ongoing lawsuits, and the Credit Card Competition Act of 2023 pose significant risks to margins.
Final Take: Maintain Your Course
Visa’s strong fundamentals and long-term prospects are promising. However, investors should avoid rushing to buy the stock. Instead, they should closely monitor developments in consumer spending and regulatory hurdles to identify a more appropriate entry point. Those already holding Visa stock can maintain their position, as the upcoming earnings report is expected to reaffirm the company’s strong operational performance.
Featured Image: Unsplash
