Visa Stock Analysis: Visa Leading the Charge

 

  2016-09-15_18-55-38  The article was written by Jacob Saphir, a Financial Analyst at I Know First.

Visa Stock Analysis

“The prudent course is to make an investment in learning, testing and understanding, determine how the new concepts compare to how you now operate and thoughtfully determine how they apply to what you want to achieve in the future.” Dee Hock

Summary:

  • Fundamental Strength
  • Acquisition of Visa Europe
  • Costco
  • Switching to Mobile Payment
  • I Know First Algorithm maintains a bullish forecast on V

Background:

Visa, Inc. (V), is payment technology company processing electronic payments.  Founded in 1958 as BankofAmericard and headquartered in Foster City, California, Visa has grown over the years to be in operation in over 200 countries.  With over 2 billion cards in circulation and approx. 80 billion transactions annually, Visa is considered one of the most recognized logos worldwide.  Although its brand image is widely known, not everyone is familiar with how Visa operates.  Visa does not issue credit cards, nor set credit limits, interest rates, or collect interchange fees. These tasks are handled by the banks, credit unions, and other financial institutions.  Visa provides a mean for people to process transactions.  Visa’s source of revenue are charging its clients for data processing the transactions, support service, cross border transaction fees and currency conversion.  As the world is switching from traditional plastic payment, Visa is adopting to the change by advancing in mobile payment, making transactions faster and more convenient.  We maintain a bullish forecast for Visa for the following reasons: fundamental strength, increase in exposure to the European market, exclusive card right with Costco, and adapting to mobile payment.

Visa Stock Analysis

Fundamental Strength:

Visa has been consistently achieving revenue growth for the past ten years.  As of Sept. 2015, Visa’s annual revenue grew 370% higher than it earned in Sept. 2006. Much like Visa’s revenue, its operating margin and net income also increased as well.  In a span of three years, both key figures increased by nearly 300%. As Visa’s cash reserves increased, so did its dividend payout.  For the past 5 past years, the dividend per share growth rate was 33.40%.  Investors watched as the company continued to reward its shareholders through its dividends.  Although net income decreased by 76% in its third quarterly earnings for the year due to Visa’s Acquisition in Visa Europe, the board members are confident in its future.  So much so, on July 21, Visa announced it will invest $5 billion dollar in a stock repurchase program.  Some speculate that such figures with holding a large reserve of cash, could suggest a mature market.  If everyone is using plastic, what is else is there to grow?  Visa found its answer looking elsewhere and for new ideas.

Visa Stock Analysis

Acquisition of Visa Europe:

One June 21, 2016, Visa acquired Visa Europe in a $23.4 billion transaction.  As one large global corporation, Visa will now have access to Europe’s population with over 500 million cards in use.  According to Visa, this merger will bring an additional 1.5 trillion euros worth of transaction, over 18 billion transaction annually in 38 countries. Visa’s acquisition will improve the company’s position to compete against its biggest rival, MasterCard, through diversifying its resources more strategically.  Although Europe’s population and GDP growth rates may be lower than in other parts of the world, Visa calculates an additional increase in market because 37% of personal transactions in Europe are still conducted in cash.  This as an additional $3.3 trillion in potential transaction.

Costco Market:

Earlier this year, Citibank along with Visa signed an exclusive agreement with Costco, so Visa would be the only credit card company allowed for consumers to make purchases.  Ranked among the top 100 most valuable brands by Forbes with a sales of $117 billion dollars, Costco is another reason to be bullish on Visa.  Costco is the second largest retailer in the world.  With this success, Costco expanded from selling bulk size merchandise towards other products and services such as tire sales, gas stations, prescriptions, optometry, and travel planning.  Costco is faring better than its main competitor, Sam’s Club.  Despite Walmart, the largest retailer in the world, purchasing Sam’s Club to compete against Costco, Sam’s Club is under performing against Costco.  Costco has been experiencing a higher growth rate in sales, and despite having less number of locations than Sam’s Club, it surpassed Sam’s Club’s sales by at least 30% in the year 2015.

Visa Stock Analysis

Switching to Mobile:

Focusing its future from plastic card use to digital transaction, Visa released Visa Token Service and Visa Checkout.  Visa Token Service is a feature from Visa to increase security.  To combat credit card fraud, which is costing billions in losses, Visa Token Service will replace personal details found on credit card transactions such as the card’s sixteen digit code, with a series of numbers generated by Visa, without having to risk sharing personal information.  Another feature released is the Visa Checkout online payment service.  With a click of a button, the card’s information is saved for online shopping, making the process faster and more convenient. Visa in not just limiting themselves to these products, they are now exploring into car commerce.  Working with Honda, Visa is becoming an industry first to have its services featured in Honda vehicles integrated into the cars. Drivers or passengers in the future may start using the car’s integrated system to make purchases such as for gas, fast food, and parking.  Also in partnership is Parkwhiz, the nation’s largest on-demand parking app.  Parkwhiz CEO Aashish Dalal, sees a future by “eliminating the need for drivers to take tickets or check out at pay boxes is a giant step toward a frictionless experience and a big win for drivers. ParkWhiz is thrilled to be partnered with Visa on this ground-breaking innovation.”

Conclusion:

We are maintaining a bullish forecast of the stock.  With strong fundamental figures, expanding into Europe through its acquisition of Visa Europe, signing an exclusive agreement with Costco, and adapting to mobile payment, I Know First’s algorithm forecast Visa as a long term investment.

Visa Stock Analysis

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence. 

Past I Know First Forecast Performance on V

In such as the one dated on October 14, 2015, the algorithm accurately forecast a signal for Visa.  In nearly a one year time span, the stock rose impressively by 14.23%, beating the S&P 500 return of 6.57%. This translates to Visa surpassing the S&P 500’s return by approx. 116%.

Visa Stock Analysis

If we were to compare the forecast back in January 13, 2016, to the latest forecast I Know First algorithm released as of September 18, 2016, we can see both forecasts rate Visa as a buy.  The confidence level for a year forecast is close to the level as its previous forecast.  If the previous forecast last January accurately predicted the stock would increase, the confidence level registered in the latest forecast could indicate another bullish return.

This bullish forecast on Visa sent to I Know First subscribers on October 6, 2015


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