Visa (NYSE:V) operates as a digital payments service provider.
The company also facilitates global commerce through the transfer of value and information among its global network of consumers, merchants, financial institutions, businesses, strategic partners, and government entities.
I am bullish on V stock.
Historical Outperformance Should Continue
An investment in Visa of $10,000, 10 years ago, has returned over $117,000 to the investor, including dividends. This represents a compound annual growth rate (CAGR) return of nearly 28%. The same investment in the S&P 500 ETF Trust (SPY) would have netted just $48,000, also including dividends.
During this time, operating revenues have grown each year, until the pandemic altered 2020.
In the past five years alone revenues have grown over 50%, while EBITDA has grown over 70%.
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Opportunity Presents Itself
Visa's growth was blunted during the pandemic, as things like international travel ground to a halt. Cross-border transactions are highly profitable for credit card companies, and therefore profits have been hindered.
Despite this stumbling block, diluted EPS remained a robust $4.95 over the trailing 12 months (TTMs) since last earnings report.
Future earnings per share will also be assisted by the company's robust share buyback program. Visa has repurchased over $7 billion in stock over the TTMs. The board of directors has authorized an additional $8 billion towards the buyback program, and this is likely to continue.
The stock has pulled back from all-time highs, and now trades 9% off July 2021 highs. While this discount may not seem significant, Visa is a stock that does not go on sale very often. There is one very good reason that investors make Visa a cornerstone of a portfolio: profitability.
Exceptional Margins
Profitability is the name of the game for Visa. The company generates an EBITDA margin of close to 70%, and an operating margin over 64%. For comparison, highly successful companies Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) do not come close to matching this level of profitability.
On EBITDA, Google and Apple post margins of 34% and 32%, respectively. For operating margins, they come in at between 25% and 28%. These are very impressive numbers; however, Visa's profitability is much better.
This has allowed Visa to generate $13.35 billion, or $5.91 per share, in cash from operations over the TTMs. With inflation on everyone's mind, Visa also offers an advantage. As credit card revenues from transactions are generally percentage based, when prices rise, so will revenue.
This gives investors a built-in inflation hedge, with a stock that historically outperforms the market significantly.
Wall Street’s Take
Wall Street analysts are extremely bullish on Visa stock, with a Strong Buy consensus rating, based on 19 Buy, one Hold, and no Sell recommendations.
The average Visa price target of $280.75 implies 25.2% upside potential.
Summary on Visa
Stocks like Visa do not often go on sale. As an exception, the pandemic and other macro trends have allowed for an 11% drop from July 2021 highs.
This is not likely to last long. Investors will once again look to add Visa to their portfolios due to its incredible profitability, inflation protection, and robust buyback program.
Disclosure: At the time of publication, Bradley Guichard had a position in securities mentioned in this article.
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