Visa has staged an impressive comeback, exceeding earnings estimates in its latest quarter, fueled by the post-pandemic resurgence in global travel.
The news gets better for Visa’s shareholders. The company reported robust free cash flow for the period, raised its outlook for the upcoming year, and unveiled an aggressive stock buyback plan.
Visa’s CFO, Chris Suh, emphasized the company’s strong fundamentals and the untapped potential in cross-border spending, particularly in Asia and inbound to the U.S.
The third-quarter results reflect a strong desire among consumers to explore international destinations and spend freely. Visa’s “cross-border” payments volume surged by 21% year over year, far outpacing the 9% overall increase. The company processed an impressive $3.2 billion in credit and debit transactions during the same period.
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In their report, Visa (ticker: V) revealed revenue of $8.6 billion in the fourth quarter of fiscal 2023, marking an 11% increase and aligning with Wall Street’s predictions. Net income stood at $4.7 billion, or $2.27 per share. After adjusting for one-time factors, the earnings per share reached $2.33, surpassing the $2.25 consensus estimate and showing a robust 21% growth from the same quarter the previous year. Free cash flow exceeded analysts’ expectations by a significant margin, coming in at $6.6 billion.
In after-hours trading on Tuesday, Visa’s stock rose by 2%.
However, the real focus for investors is on management’s guidance for the upcoming fiscal year. Before the report, Wall Street was expecting fiscal 2024 revenue to reach $36 billion, an 11% increase, and adjusted earnings per share of $9.81, up by 13%.
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Visa’s new management team confidently presented their guidance for the next fiscal year, projecting “high single-digit to low double-digit” revenue growth and “low-teens” growth in adjusted earnings per share—both exceeding Wall Street’s expectations. CEO Ryan McInerney expressed confidence in the company’s ability to navigate potential global economic uncertainties.
The past month had seen Visa shares dip by 6%, as investors anticipated the results and pondered changes to the company’s share structure, including the potential sale of a large block of stock held by U.S. banks.
Visa remains committed to repurchasing its own stock, buying back $4.1 billion in the reported quarter. The company also announced a new $25 billion buyback authorization and increased its dividend payment by 16%, now at 52 cents per share quarterly, providing a 0.9% annual yield.
Visa continues to offer promising long-term prospects, with a dominant position in the global payment-processing industry, a debt-free balance sheet, and a business model built for inflation protection and scalability. As the global economy expands and digital payments replace cash, Visa anticipates more growth.
Despite these promising factors, Visa’s stock currently trades at an undervaluation compared to historical standards and the broader stock market, with shares at around 24 times estimated earnings for the coming year, in contrast to rival Mastercard at 27 times and Visa’s five-year average of 29 times.
Barron’s previously recommended investing in Visa stock, citing its superior growth prospects, resilience to inflation, and attractive valuation. Since then, Visa’s shares have generated a return of approximately 20%, outperforming the S&P 500’s 12% return.
