Thursday, October 30, 2014

Visa Inc. Q4 Earnings & Sell Thesis; Strong transaction growth and increased share buyback propel stock

Visa Inc. reported Fiscal Q4 EPS of $2.18, beating street consensus of $2.11 by 3.3%. This EPS figure is up 17% YoY, from $1.85 in Q4 fiscal 2013. This marks Visa’s fourth consecutive earnings beat. The stock is currently trading at $234.34, up ~9% from yesterday’s close- pushing to our price target.

Total net operating revenues for the quarter were $3.3BB compared to our estimates of $3.6BB, and an increase of 8.6% from the prior year’s quarter. Of this, Q4 service revenues came in at $1.5BB (up 8% YoY) and data processing revenues were $1.3BB (up 4% YoY). Total processed transactions for the quarter were $16.9BB, up 9% from the prior year, very much in line with the original investment thesis. Growth in emerging markets continue to drive top line growth.

The company continues to show effort in returning cash to shareholders. Visa authorized a new $5B share repurchase program, in addition to the previous 20% quarterly dividend increase.
After updating our model and checking our investment thesis, we believe the market has fully priced in future revenues that were being discounted originally, and the stock is now fully valued.

We are booking a capital gains return of 16%, excluding dividends, which would bring us closer to the 20% originally forecasted.  We are pleased with Visa being a strong part of our portfolio, and will continue to monitor the stock for another buying opportunity.

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