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Visa Stock: Oversold, but Not Necessarily Undervalued
Stock Analysis & Ideas

Visa Stock: Oversold, but Not Necessarily Undervalued

Shares of credit services company Visa (V) have continued to falter over the past few weeks, now down about 22% from all-time highs. The COVID-19 Omicron variant news certainly hasn’t helped Visa stock either, causing it to drop further.

Undoubtedly, payment players threaten the credit card giant’s previously insurmountable moat, with no-interest installments (Buy Now Pay Later) that have been a hit among consumers of late.

While consumer payment firms like Visa have their own BNPL services, it’s evident that BNPL could leave a long-lasting dent in the profitability prospects of Visa’s flagship business. Indeed, if one can avoid racking up high-interest credit card debt, one will. With many BNPL options popping up, Visa has an issue on its hands, with no easy solutions.

Undoubtedly, the recent plunge into bear market territory may very well be warranted. That said, Visa does have many levers it can pull to offset current pressures.

Still, I am bearish on V stock, as the company will need to do more to justify its hefty 17.3x sales multiple in the face of potential headwinds. (See Analysts’ Top Stocks on TipRanks)

Not only is the payments space becoming crowded, but consumer appetite could be curbed once again, as consumer spending exhausts and a new variant threatens to cause further economic pain.

Visa’s Payment Volumes Remain Robust, but for How Long?

For the fourth quarter of Fiscal 2021, Visa revealed some pretty decent results that saw payment volumes rise 17% year-over-year.

Indeed, Visa benefited from a pick-up in consumer spending across the board, both online and offline. Management was confident with its guidance, calling for the top-line to grow at the higher end of its range for Fiscal 2022. The solid guidance also came alongside a 17.2% hike to its quarterly dividend.

With the growth bar set high, though, the stakes are pretty high, with rivals so hungry to take share. Arguably, Visa’s dominant position atop its market makes it vulnerable to disruptive forces, making further growth and margin expansion quite tough as other up-and-coming payment firms partner up with major retailers such as Amazon (AMZN).

Amazon’s Disruptive Impact

In what was a tough blow, Amazon recently announced its plans to stop accepting U.K.-issued Visa credit cards. There’s no question that there are many retailers in the sea to team up with. That said, all it takes is one big fish like Amazon to turn the tables. Right now, the tables could turn against Visa as the race to partner up intensifies.

In any case, the surprising announcement could overshadow Visa’s remarkable earnings beats. While it’s tough to tell when Visa could start really surrendering meaningful share to rivals, not having such a dominant e-commerce behemoth completely on your side ought to be seen as a major negative.

To add even more salt to the wound, Amazon noted that it believes fees on Visa credit cards are too high. Amazon certainly isn’t wrong to have such beliefs.

Wall Street’s Take

Turning to Wall Street, Visa earns a Strong Buy consensus rating. Out of 14 analyst ratings, there are 14 unanimous Buy recommendations.

The average Visa price target of $277 implies 41.1% upside potential. Analyst price targets range from a low of $255.00 per share to a high of $305.00 per share.

The Bottom Line on Visa Stock

For now, Visa will need to innovate to maintain its dominance. I don’t see a clear pathway for continuing its incredible growth streak. As such, I’m staying on the sidelines, as the recent 20% decline may not be as significant a bargain as some value hunters may think.

Disclosure: Joey Frenette owned shares of Amazon at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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