Visa (V) To Ride High On Consumer Spending & Job Growth

The thriving U.S. economy should benefit Visa Inc. (NYSE:V) . Favorable factors like record low unemployment rate, strong customer confidence, steady wage growth and financial flexibility in consumer hands from a reduced tax rate bode well for business growth at this payment and network processor company.

Most recent data on retail sales for April showed that the value of sales inched up 0.3%, matching the median forecast after a 0.8% rise in March. April retail sales hinted at firm consumer demand as fatter paychecks more than offset the effect of rising fuel costs.

The recent positive sales trend is expected to continue as consumer reliance on the company remains sturdy amid a progressing U.S. economy.

These developments augur well for Visa with fast digital transformation in shopping and an increase in usage of credit and debit cards for making payment for purchases. Revenue growth for Visa is directly proportional to its consumer spending level. The same is reflected in the company’s results for the first half of fiscal 2018, which witnessed an 11% year-over-year rise in net revenues to $9.9 billion. This upside mirrored consistent growth in processed transactions, nominal payments volume as well as nominal cross-border volume.

In a year's time, the stock has gained 36% compared with the industry's growth of 33%.

Per Visa’s second-quarter fiscal report, its payments volume on a constant dollar basis expanded 11%, driven by a strong global economy. U.S. payments volume grew on the back of strength across retail and every day spend segments as well as continued solid growth in travel categories.

Another company in the same space — Mastercard Incorporated (NYSE:MA) — experiences overall growth from low employment, healthy consumer confidence and robust retail spending. Its U.S. Gross Dollar Volume (GDV) in the first quarter (which measures the aggregate amount of purchases made with Mastercard’s branded cards) extended 10%, up 1% from fourth quarter and was made up of Credit and Debit growth of 9% and 12%, respectively.

Zacks Rank and Key Picks

Visa carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are FleetCor Technologies, Inc. (NYSE:FLT) and WEX Inc. (NYSE:WEX) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FleetCor Technologies beat estimates in all the four reported quarters with an average positive surprise of 2.94%.

WEX Inc. surpassed expectations in each of the last four quarters with an average beat of 2.56%.

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