Morningstar

Visa Earnings: Growth Holds at an Attractive Level

We think Visa stock is overvalued.

The logo of credit card company Visa Inc. is seen on a credit card.
Silas Stein/picture alliance via Getty
Securities in This Article
Visa Inc Class A
(V)

Key Morningstar Metrics for Visa

What We Thought of Visa’s Earnings

Visa V has benefited from strong and stable consumer spending this year, and that continued to be the case in its fiscal fourth quarter.

Why it matters: Year-over-year net revenue growth was 11% on a constant currency basis, basically in line with what we’ve seen over the past few quarters.

  • Constant-currency payment volume growth in the quarter was 9%, up 60 basis points from the previous quarter. Transaction growth held steady at 10%. Visa’s results suggest consumer spending is holding strong, and management commented that this was broad-based across spending categories.
  • The quarter provided further evidence that cross-border volumes have fully normalized. Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew by 11% year over year in the quarter, in line with the previous quarter and prepandemic levels. Going forward, we think this area is most sensitive to the macro environment.

The bottom line: We will maintain our $306 fair value estimate for the wide-moat company and see shares as modestly overvalued. We think the market is a bit too optimistic about the company’s long-term prospects, given recent strong results.

  • During the quarter, Visa took a $903 million provision related to interchange litigation. The total charge for the fiscal year was $2.6 billion. We think charges due to fines and lawsuits are an ever-present risk for the company but also that these issues are in some sense an outcome of its wide moat.
  • In the quarter, adjusted operating margins (based on net revenue) declined 40 basis points year over year and were down 60 basis points for the full year. However, we don’t focus on near-term margin results, as investments for growth often drive short-term margins and the compression was slight.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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