I was a big fan of payment processor Visa (NYSE:V), even before the company reported quarterly earnings last week. And now that the company’s fiscal second-quarter report is out, I’m reiterating my buy call on V stock.
Simply put, Visa is a fundamentally sound, innovative company that is perfectly positioned to capitalized on today’s cash-less society. And even with the economic downturn sweeping around the globe today, V stock is a reliable growth engine for your portfolio.
Let’s take a look at those earnings.
A Quick Breakdown of V Stock
Visa reported earnings in the first quarter of $1.39 per share on revenue of $5.85 billion. That beat analysts’ expectations of earnings per share of $1.36 on revenue of $5.75 billion. It was also better than the $1.31 EPS the company reported in the same quarter a year ago.
But perhaps more importantly, Visa gave investors a glimpse of what to expect in the second quarter, when the full brunt of the novel coronavirus slowdown will hit.
Visa stated that payment volumes in the U.S. were down 19% through April 28. Debit card payments were down 6% and credit card payments were down a whopping 31%.
Additionally, Visa noted it saw a substantial increase in e-commerce traffic as much of the country operates under stay-at-home orders and social distancing. E-commerce volume in April was up 18%, while the purchase volume of card-present sales was down by 45%.
Visa ended the quarter with $13 billion of cash, cash equivalents and investment securities, and since added $4 billion in debt issuance to give it more flexibility for the rest of the year.
Notably, Visa bought back 17.8 million shares in the quarter for $3.2 billion, despite the coronavirus slowdown. V withdrew its guidance for 2020, but reiterated plans to buy back more than $9 billion in stock this year.
The Long-Term View for V
Like every other company, Visa had what it thought was a solid plan for success heading into 2020. The global economy was humming along, consumer confidence was high and Visa was in the catbird seat as an a leader in its space, along with Mastercard (NYSE:MA) and American Express (NYSE:AXP).
But while the coronavirus blew those plans out of the water, Visa CEO Alfred Kelly stated the company is keeping the longer view in mind. “I want to be absolutely clear that nothing has changed about these opportunities in terms of the medium and long-term growth for the company.”
Visa is working on holding expenses flat for the rest of the year as the global economy begins to recover. And it’s developing partnerships around the world to expand its reach into places in Europe, Taiwan, Saudi Arabia and Africa.
But the real strength for Visa right now is its position in e-commerce. One thing that’s happened during the coronavirus is a fundamental shift by consumers in how they make purchases. Brick-and-mortar stores are closed and people are getting more comfortable about making their purchases online.
Visa and other payment processing companies earn revenue from each purchase made on their platforms. So as the e-commerce trend grows and cash point-of-purchase sales diminish, Visa will have an even bigger share of the global economy moving forward.
Here’s how Kelly describes it:
“We’re seeing people during these last couple of months start to buy things in e-commerce environment that they would typically buy in-store, whether that’s furniture, electronics, in some cases, apparel. And I think, to the degree that they’ve had good experiences, that’s a really good thing. And remember, when you think about e-commerce, the reality is that it’s a very, very positive thing for us because cash isn’t a competitor in that space. So, the reality is that we get a lot higher share from those transactions that go to e-commerce than we get in the face-to-face world. And I think there are some permanent changes … I think in general, e-commerce will explode coming out of this.”
The Bottom Line for V Stock
Visa is a fundamentally sound company with plenty of cash to sustain itself — and even add to shareholder value — during the global downturn.
It’s aggressive in embracing fintech and looking at new services it can add for its customers, including the ability to buy bitcoin.
And lastly, Visa continues to be committed to its dividend, which has grown for six consecutive years. The yield is modest, at less than 1%, but I appreciate any company that is committed to adding shareholder value.
V stock has a ‘A’ quantitative rating in my Portfolio Grader, and receives a ‘B’ overall rating.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.