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Visa (V) Up 0.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Visa (V). Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Visa due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Visa Q2 Earnings Beat on Volume Growth & Consumer Spending

Visa reported strong second-quarter fiscal 2024 results, which benefited from expanding payments volume, cross-border volume and processed transactions.

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Despite challenges, such as a high interest rate environment, more than average inflation level and concerns about the economic slowdown, resilient consumer spending and strong e-commerce trends supported Visa's performance. However, higher operating expenses and client incentives partially tempered the upside.

Its earnings per share (EPS) of $2.51 outpaced the Zacks Consensus Estimate of $2.43 by 3.3%. The bottom line rose 20% year over year.

Also, net revenues improved 10% year over year to $8.8 billion in the quarter under review. The top line beat the consensus mark by 2.1%.

Growth in Business Drivers

Visa's payments volume increased 8% year over year on a constant-dollar basis in the fiscal second quarter, attributable to expanding operations across Europe, CEMEA and LAC regions. Processed transactions (implying transactions processed by Visa) grew 11% year over year to 55.5 billion and beat our estimate of 54.7 billion.

On a constant-dollar basis, the cross-border volume of Visa climbed 16% year over year in the quarter under review. Excluding transactions within Europe, its cross-border volume (that boosts a company’s international transaction revenues) also rose 16% year over year on a constant-dollar basis.

Q2 Operational Performance

Service revenues (depends on payments volume in the previous quarter) of $4 billion grew 7% year over year in the March quarter on the back of improved payment volumes. The figure marginally missed our estimate of $4.1 billion. Data processing revenues of the company climbed 12% year over year to almost $4.3 billion, which met both the Zacks Consensus Estimate and our estimate.

International transaction revenues amounted to almost $3 billion, which improved 9% year over year in the fiscal second quarter. The metric benefited from increased cross-border volume but missed the consensus mark by 1.4% and our estimate by 2.3%. Other revenues rose 37% year over year to $756 million, which beat the Zacks Consensus Estimate and our estimate by more than 15% and 18%, respectively.

Client incentives (a contra-revenue item) escalated 12% year over year to $3.3 billion in the quarter under review but were lower than both the Zacks Consensus Estimate and our estimate of $3.4 billion. The metric accounted for 27.1% of the company’s gross revenues of $12 billion.

Operating expenses of Visa jumped 29% year over year to $3.4 billion in the fiscal second quarter due to higher personnel, marketing, network and processing, professional feesand G&A expenses. Interest expenses of $82 million declined from $142 million reported in the year-ago period.

Balance Sheet (as of Mar 31, 2024)

Visa exited the March quarter with cash and cash equivalents of $13 billion, which fell from the fiscal 2023 year-end level of $16.3 billion. Total assets of $92.4 billion rose from $90.5 billion in the fiscal 2023 year-end level.

Visa’s long-term debt amounted to $20.6 billion, which inched up from the fiscal 2023 year-end level of $20.5 billion.

Total equity of $40.5 billion increased from the fiscal 2023 year-end figure of $38.7 billion.

Decline in Cash Flows

The company generated net cash from operations of $4.5 billion in the fiscal second quarter, which increased 17.6% year over year. Free cash flows are recorded at $4.3 billion, up 16.6% year over year.

Capital Deployment Update

Visa rewarded $3.8 billion to shareholders via share buybacks ($2.7 billion) and dividends ($1.1 billion) in the March quarter. V had leftover authorized funds of $23.6 billion under its repurchase program as of Mar 31, 2024.

On Apr 23, 2024, management sanctioned a quarterly cash dividend of 52 cents per share, which will be paid out on Jun 3, to shareholders of record as of May 17.

Fiscal 3Q24 Outlook

On an adjusted constant-dollar basis, net revenues are anticipated to witness low double-digit growth. Operating expenses are estimated to grow in the low teens on an adjusted constant-dollar basis. It expects EPS to witness the high end of low double-digit growth.

Fiscal 2024 View

Management continues to expect net revenues to grow in low double digits on an adjusted constant-dollar basis in fiscal 2024. Operating expense is expected to witness low double-digit growth on an adjusted constant-dollar basis. It also anticipates EPS to witness growth in the low teens.

Amortization of acquired intangible assets is projected at around $180 million or 7 cents per share. Acquisition-related costs are expected at roughly $115 million or 5 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Visa has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Visa has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Visa belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Equifax (EFX), has gained 7.3% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

Equifax reported revenues of $1.39 billion in the last reported quarter, representing a year-over-year change of +6.7%. EPS of $1.50 for the same period compares with $1.43 a year ago.

For the current quarter, Equifax is expected to post earnings of $1.79 per share, indicating a change of +4.7% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Equifax has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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