Jim Sinegal: Our new research solidified our support for Visa as the best positioned company in the payment industry. Visa has the largest and fastest growing network, it has a 40-year history of strong brand acceptance and customer security, and there are several growth drivers that ensure the company will generate higher revenues and profits for years to come. Not only is the cash-to-electronic transition continuing, consumer spending is growing around the world, and there are new sources of revenue for Visa to take advantage of, including the monetization of data and other types of customer information.
We also looked at new sources of competition in the payment industry from new technologies like Blockchain and Bitcoin to established technology companies like Amazon, Facebook, and Google. We think each of these competitors has a key weakness that will allow companies like Visa and Mastercard to maintain their strong competitive position for years to come.
We think Visa is slightly undervalued at a discount to our $108 fair value estimate, its trading at about 30 times this year's free cash flow, and its returning virtually all of that cash flow to shareholders in the form of dividends and repurchases.