Visa (NYSE: V)
QVI Research Report | Updated Coverage | September 2023
Visa is a dividend-paying large-cap stock in the financials sector’s transaction and payment processing services industry.
The company offers a global transaction processing network that enables authorization, clearing, and settlement of payment transactions.
Despite premium valuations and shareholder yields underperforming the intermediate Treasury benchmark rate, the value proposition, returns on management, and downside risks reflect a high-quality business model.
QVI reiterates its rating on Visa in the Expanded Portfolio in this updated research report.
When referencing this report, premium (paying) subscribers can access their Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on September 12, 2023, and intended for illustration only.
Visa Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including the stock’s historical performance vs. the sector and market.
Visa, Inc. (NYSE: V) is a dividend-paying large-cap stock in the financials sector’s transaction and payment processing services industry. V was added to the QVI Expanded Portfolio on October 12, 2022, at a dividend- and split-adjusted $176.82 a share.
Visa, Inc. operates as a payments technology company worldwide.
The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions.
It also offers credit, debit, and prepaid card products; tap to pay, tokenization, click to pay; Visa Direct, a real-time payments network; Visa B2B Connect, a multilateral B2B cross-border payments network; Visa Treasury as a Service, a cross-border consumer payments business; and Visa DPS that provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact center services.
Further, the; company provides Cybersource, a payment management platform; and risk and identity solutions, such as Visa Advanced Authorization, Visa Secure, Visa Advanced Identity Score, and Visa Consumer Authentication Service; and Visa Consulting and Analytics, a payments consulting advisory service. It provides its services under the Visa, Visa Electron, Interlink, VPAY, and PLUS brands.
The company serves consumers, merchants, financial institutions, and government entities.
Visa Inc. was founded in 1958 and is headquartered in San Francisco, California, USA.
QVI’s value proposition elevator pitch for Visa:
A household name in global electronic payment processing has half its revenues dropping to the bottom line. Now, that’s a dynamic business model, if not highway robbery.
Performance vs. Sector and Market
The chart below illustrates V’s performance against the Financial Select Sector SPDR® Fund ETF (NYSE: XLF) and the SPDR® S&P 500 ETF Trust (NYSE: SPY) since being added to the QVI Portfolios in October 2022.
For example, V has outperformed its sector and the broader market in total return during the coverage period.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit Visa’s investor relations webpage and its most recent Form 10-K Annual Report submitted to the US Securities and Exchange Commission or SEC.
QVI’s value proposition rating for Visa: Bullish.
V Total Returns vs. XLF and SPY Visa Inc (V) Total Return: +39.83% Financial Select Sector SPDR ETF (XLV) TR: +15.56% SPDR S&P 500 ETF Trust (SPY) Total Return: +27.32% Since October 12, 2022 (as of September 12, 2023)
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V Shareholder Yields
QVI Research Report’s shareholder yields section uncovers the equity bond rate of the company’s common shares. It aims to quantify the yields on earnings, free cash flow, and dividends to measure how the targeted stock compares to the prevailing yield on the 10-Year Treasury benchmark note.
Earnings and Free Cash Flow Yields
The chart below demonstrates that V’s earnings yield traded below the QVI targeted floor at 3.19%. In addition, at 3.60%, V’s free cash flow yield traded under the threshold.
As inverse valuation multiples, the weighted shareholder yields suggest that V trades at a premium to earnings and free cash flow. QVI will further explore valuation multiples later in this report.
Visa offers a cursory forward dividend yield of 0.73%, supported by a conservative 21.53% payout ratio, thus indicating a dividend rate with room for additional annual increases.
V yielded 1.02% from an annual payout of $1.80 on a split- and dividend-adjusted cost basis of $176.82 per share on October 12, 2022, the initial date of QVI’s addition of a slice of the company to the Expanded Portfolio. Thus, the yield-on-cost basis was +29 basis points [bps] above the forward yield.
Average of Shareholder Yields
Quality Value Investing takes the average of the three shareholder yields to measure how the stock compares to the prevailing yield of 4.28% on the 10-Year Treasury benchmark note. For example, the average shareholder yield for V was 2.51% or -177 bps below the 10-Year and 2.60% or -168 bps under the Treasury yield when using QVI’s yield-on-cost basis.
QVI’s shareholder yields rating for V: Bearish.
V Shareholder Yields Visa Inc (V) Price: $247.27 Visa Inc (V) Earnings Yield: 3.19% Visa Inc (V) Free Cash Flow Yield: 3.60% Visa Inc (V) Dividend Yield: 0.73% One-Year Trailing (as of September 12, 2023)
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QVI Research Report’s fundamentals section measures the performance strength of the company’s senior management by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the chart below, Visa had a three-year annualized low-double-digit revenue growth of +11.66%, outperforming the +7.32% median growth of the financials sector.
Farther down the income statement, Visa had a trailing three-year nifty double-digit net profit margin of +51.94%, doubling the sector’s median net margin of +25.78%.
Returns on Equity and Invested Capital
Visa’s management produced a trailing three-year return on equity or ROE of 45.25%, tripling the targeted threshold and trouncing the sector’s median ROE of 11.30%.
Stock buyback programs often elevate ROE. For example, Visa’s board of directors authorized $12 billion in repurchases in October 2022, as it has more than adequate free cash flow. But is the company buying back its stock at value prices on behalf of shareholders, and would dividend rate increases be more welcomed at current share prices?
At 28.17%, Visa’s three-year return on invested capital, or ROIC, was double the QVI threshold, vastly outperforming the sector’s median ROIC of 5.78%, indicating that its senior executives are superior capital allocators.
In addition, Visa’s ROIC exceeded its weighted average cost of capital, or WACC, of 10.12%. (Source of WACC: GuruFocus).
Double-digit revenue growth, market-leading profit margins, and sector-beating returns on equity and invested capital suggest that Visa’s management continues its long-tailed history of second-level performance in the Golden Gate City.
QVI’s fundamentals rating for Visa: Bullish.
V Returns on Management Visa Inc (V) Revenue Growth: +11.66% Visa Inc (V) Profit Margin: +51.94% Visa Inc (V) Return on Equity: +45.25% Visa Inc (V) Return on Invested Capital: +28.17% Three-Year Trailing (as of September 12, 2023)
V Valuation, Risks, and Investment Thesis
Next, QVI dives into the valuation multiples, downside risks, and overall investment thesis of Visa, Inc. (V), including potential catalysts. So, let’s dig further after reading the required disclosures and background information.
Disclosure: I/we have no beneficial positions through the direct ownership of the common shares of any stocks mentioned. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this article.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
About the Writer
David J. Waldron is the contributing editor of Quality Value Investing and author of the international-selling book Build Wealth with Common Stocks: Market-Beating Strategies for the Individual Investor. David’s mission is to inspire the achievement of his readers’ financial goals and dreams. His work has been featured on Seeking Alpha, TalkMarkets, ValueWalk, MSN Money, Yahoo Finance, QAV (Australia’s #1 Value Investing Podcast), Money Life with Chuck Jaffe, LifeBlood with George Grombacher, The Acquirer’s Multiple, Amazon, Barnes & Noble, Apple Books, the BookLife Prize, and Publisher’s Weekly. David received a Bachelor of Science in business studies as a Garden State Scholar at Stockton University and completed The Practice of Management Program at Brown University.
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V Valuation Multiples
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