Visa Earnings: Strong Growth as Consumer Spending Holds Up

Key Morningstar Metrics for Visa

• Fair Value Estimate
  : $323.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Visa’s Earnings

Despite recent uncertainty, consumer spending is holding up well, leading to strong top-line growth for Visa V in its fiscal second quarter.

Why it matters: Visa’s net revenue increased 16% on a constant currency basis, marking an acceleration from recent quarters.

• Payment volume increased 9% year over year on a constant currency basis, which is at the high end of the range we’ve seen in recent quarters. Relatively strong domestic growth was the main driver, with the US posting 8% growth. While macro trends remain positive for now, we still see near-term risk.
• Constant currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 11% year over year during the quarter, in line with the past three quarters. Cross-border transactions are particularly lucrative for the networks and the most macro-sensitive area. While recent results suggest stability, this area bears close watching, in our view.

The bottom line: We will maintain our $323 fair value estimate for the wide-moat company and view the shares as fairly valued.

• Management had previously communicated that spending in the quarter would be a bit elevated. However, with the strong top-line result, adjusted operating margins (using net revenue) still improved slightly to 67.3% from 67.1% last year. Client incentives increased 14% year over year.
• Visa returned $9.2 billion to shareholders in the quarter. While we like that the company has historically returned the vast majority of its free cash flow, we question whether a larger dividend would make its commitment to capital returns clearer.