V: Hold; PT $75; 3Q15 Update

V: 8/10/15; $74.38



From Thomson Reuters I/B/E/S Estimates:

Forward Earnings: 2.84

Forward PE: 26.19

Earnings Growth Rate (EGR): ~15%

PEG Ratio: 1.75 

S&P Forward PE: 17.01
S&P EGR: 7.23%







V reported its quarterly earnings on Thursday, July 23.  The reported revenues and earnings both topped analyst estimates.  Revenue increased 12% year-over-year (y-o-y), and EPS increased almost 28% y-o-y.  The revenue growth was especially impressive considering the inconsistent international economies and the significant reduction in oil/gasoline prices.







In addition to the profit and revenue numbers, two other noteworthy topics were presented in the earnings call.  One was an announcement that Visa is contemplating a merger with Visa Europe.  This merger would increase V's exposure to Europe and would likely include significant synergies (cost-savings due to consolidation), leading to higher profits.  V also announced that a total of 15.5 million shares were repurchased during the third quarter, bringing the total for the first 3 quarters to 44.1 million shares.  The current repurchase authorization is worth $2.8 billion of stock, which is just over 1%.  Over the past three quarters, V has repurchased just under 0.6% of its shares per quarter.







All-in-all, it's still steady as she goes with V.  Visa continues to strive for innovation in mobile payments and tokenization (security).  In addition, V has shown continued success in co-branding through re-signing a deal with Southwest Airlines and stealing the Costco account from American Express.  The stock has a rich valuation, which is warranted given the steady nature of the company's performance.  If/when the global economy heats up, V should reap the rewards of even better performance due to increased overall spending by consumers and businesses. 







While the long-term prospects of V are attractive and appear safe, Common Cents views the current valuation of Visa shares as fairly valued.   



Common Cents Take: The long-term prospects of V appear attractive and safe; however, V's current share price appears to already factor this in.  Significant updates to the long-term story may occur in the near future (i.e., a merger with Visa Europe), but until then, V's valuation does not support a significant growth in the near future.