Stock Analysis & Ideas

Visa Stock: Why It’s Now Worth Considering

Visa (V) and its industry buddy Mastercard (MA) have basically duopolized the payments processing industry.

Visa is fundamentally operating a toll booth for all daily transitions, profiting from every single purchase its cardholders make.

Accordingly, every single time we swipe our cards for our daily coffee or automatically have our cards charged from Netflix, Visa profits from frictionless and low-risk revenue streams.

Additionally, due to the company’s long-term affiliation with banking institutions worldwide (as is the case for Mastercard), Visa features an excellent moat.

Driven by its industry-prevalent position and high-margin business model, Visa has yielded market-beating returns since its IPO. While the stock’s valuation remains somewhat rich, the recent correction has made shares rather fairly valued. Further, Visa’s latest results were excellent. I remain optimistic about Visa’s prospects and have changed my stance from neutral to bullish.

Accelerating Payments Volume Growth

Visa’s Q1-2022 results demonstrated continued performance improvements from last year.

Because a substantial number of retail locations remained shut down in the comparable period last year amid pandemic cases soaring, Visa’s processing volumes were rather soft in Q1 2021. While the pandemic has endured to this day, global restrictions have been relaxed, leading to Visa reporting year-over-year Q1-2022 revenue growth of 24%, to $7.1 billion. This marked a new quarterly record for the company.

Improved revenues were driven by all-around advancements across the board. Payments volume grew 20% on a constant-currency basis, reaching $2.9 trillion, as retail locations have almost fully reopened and traveling volumes have moderately recovered. In fact, this implies an acceleration in recovery, as payments volume growth came in at 17% in the previous quarter.

Cross-border volumes, in fact, recovered remarkably, growing 40% on a local-currency basis. Excluding Europe, which still suffers from stricter COVID-19 restrictions, cross-border volumes rose 51% year-over-year.

As I noted, Visa benefits from the advantages of its frictionless business model. Its gross margins are virtually 100%. Think of Visa’s cash flows as “royalties” generated from every Visa-powered payment processed, with essentially no COGS.

Hence, net margins remained at sky-high levels, reaching 56.1% in Fiscal Q1. Visa’s business model is so scalable that it should come as no surprise if net margins converged towards 60% to 70% at some point.

Capital Returns & Valuation

Due to Visa’s extremely profitable business model, management has been able to richly reward its shareholders through both dividends and stock repurchases.

The company has increased its dividend for 13 consecutive years now, with its latest hike rate being by a satisfactory 17.2%.

Stock repurchases also remain strong. In Q1 2022, Visa repurchased a total of 19.4 million shares at an average price of $210.05/share for $4.1 billion. That’s almost half the amount the company repurchased through the whole of Fiscal Year 2021. It should indicate that Visa’s management also views the stock as more fairly valued at its current levels.

That’s not to say that Visa’s stock is trading at a steep discount. Shares are currently featuring a forward P/E ratio of around 31.1. Still, considering its strong payments volume growth momentum and expanding margins, I doubt the valuation will be compressed substantially from here.

Wall Street’s Take

Turning to Wall Street, Visa has a Strong Buy consensus rating, based on 16 Buys and three Holds assigned in the past three months. At $273.47, Visa’s stock prediction suggests a 24.5% upside potential.


Overall, I believe that Visa’s accelerating growth, corrected valuation, and bolstered capital returns have enhanced the stock’s investment case. For this reason, while shares are not particularly cheap, I believe that they make for a promising buying opportunity. For this reason, I am bullish on the stock.

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