Shares of Visa (NYSE: V) have fared relatively well amid the macro volatility, up 5.3% this past month. The payments processing company is expected to announce its fiscal Q3 earnings today, July 26.
Baird analyst David Koning remains upbeat about Visa going into Q3 with a Buy rating and outlined his reasons in his research report. Let us take a look.
Visa’s Outlook for Fiscal Q3
Visa had stated on its fiscal Q2 earnings call that the suspension of its Russian operations was likely to drag down its revenues in the second half of the year by 4%. The payments processing giant also pointed out that, excluding Russia and Ukraine, its volume growth in the United States has been “robust and stable” for the past four quarters versus 2019.
As a result, Visa anticipates that its third-quarter revenues are likely to grow on a constant currency basis in the upper range of the “mid-teens.” For FY22, on a constant currency basis, Visa expects to generate revenues in the “high teens to 20% range.”
Analysts are expecting Visa to post revenues of $7.1 billion in Q3 while earnings are expected to come in at $1.75 per share.
Koning estimates Visa to earn revenues of $6.98 billion, up 15% year-over-year on a constant currency basis, and believes that its revenues in Q3 could be 1% above Street estimates. The analyst has projected Visa’s earnings to come in the range of $1.76 per share to $1.78 per share, exceeding consensus estimates.
The analyst reasoned that Visa could likely see its earnings grow by more than 20% each year over the next few years as its growth profile remains “strong.”
Growth in Travel, E-Commerce Likely to Help Visa
Koning pointed out that Visa’s long-term growth outlook remains optimistic, driven by the recovery in cross-border travel and the rise in e-commerce globally. Globally, e-commerce and contactless payments have increased during the pandemic, and if this trend persists, it could very well stand to benefit Visa.
The analyst added that cross-border travel has “significant room to improve” as it is likely to reach around 100% of 2019 levels by later this year and could potentially soar to more than 130% by the end of this year.
Cross-border transactions are a significant part of Visa’s total revenues and make up more than 50% of its net revenues.
Koning is also positive about the uptick in small-ticket transactions like paying for coffee at coffee shops, which could result in higher transaction fees for Visa.
Analysts’ Take on Visa
Summing it up, Koning concluded, “We like the stock a lot as we expect above-normal revenue/EPS growth for several years as travel recovers… Visa normally grows faster than the S&P [index], and we think that gap can be bigger than normal over the next few years.”
The analyst, however, lowered the price target to $265 from $290 on the stock, implying an upside potential of 23.7% at current levels.
The rest of the Wall Street analysts are bullish about the stock, with a Strong Buy consensus rating based on 16 Buys and two Holds. The average Visa price target of $256.35 implies an upside potential of 19.6% at current levels.
It appears that Visa is poised to deliver upbeat Q3 results and could provide some cheer to investors amid the volatility.
Visa scores a nine out of 10 on the TipRanks Smart Score system, indicating that the stock is highly likely to outperform the market.
The TipRanks Smart Score system is a data-driven, quantitative scoring system that analyses stocks on eight major parameters and comes up with a Smart Score ranging from 1 to 10. The higher the score, the more likely the stock will outperform the market.