Leading payments technology company Visa Inc.’s (V) better-than-expected fourth quarter and fiscal year 2022 results impressed investors. The stock has gained 12.6% over the past month.

V’s EPS came 3.5% above what analysts expected, and its revenue beat the consensus estimate by 3.1%. Payments volume rose 10% in the fourth quarter, while processed transactions increased 12%.

The company guided high-single-digit revenue growth for the fiscal year 2023. It expects client incentives to be between 26.5% and 27.5% of gross revenue. It has also guided low double-digit non-GAAP operating expense growth in constant dollars and high single digits growth in nominal dollars.

CFO Vasant Prabhu said, “If you just looked at our numbers and didn’t look at what people are writing or saying in the media, you wouldn’t think there’s all this anxiety or uncertainty out there or that people aren’t feeling good about things. The numbers have been steady for nine months, and spending is stable almost everywhere in the world and quite strong.”

However, Wolfe Research analyst Darrin Peller believes that V’s earnings outlook came out with “extensive parameters.” Although V’s executives said they were prepared to adjust in the event of a challenging macroeconomic or geopolitical scenario, analysts were not particularly pleased as the company did not consider the possible recession expected later this year in its annual targets.

Analysts were looking forward to V’s commentary for the coming year to get an idea of how the payments industry would get affected if there is a recession by next year. Although V’s CFO, Vasant Prabhu, acknowledged a high global recession risk, analysts were disappointed as V’s outlook assumed the economy would stay the same.

Wolfe analyst Peller said, “Importantly, V provided extensive parameters for its FY 2023 expectations, and we see elements of conservatism in its 1H23 assumptions despite basing its outlook on a consistent macro environment.” 

“Investor feedback on V’s guidance for reported revenue growth in 2023 has been constructive, although the nominal expense guidance was higher than some expectations,” he added.

V's stock has declined 6.2% in price year-to-date and 12.3% over the past year to close the last trading session at $203.33.

Here’s what could influence V’s performance in the upcoming months:

Robust Financials

V’s net revenues increased 19% year-over-year to $7.78 billion for the fourth quarter ended September 30, 2022. The company’s non-GAAP net income increased 16% year-over-year to $4.09 billion. In addition, its non-GAAP EPS came in at $1.93, representing an increase of 19% year-over-year.

Also, its net cash provided by operating activities for the fiscal year ended September 30, 2022, increased 23.8% year-over-year to $18.85 billion.

Favorable Analyst Estimates

V’s EPS for fiscal 2023 and 2024 is expected to increase 10.9% and 16% year-over-year to $8.31 and $9.64, respectively. Also, its revenue for fiscal 2023 and 2024 is expected to rise 9.4% and 11.7% year-over-year to $32.06 billion and $35.81 billion, respectively. It has surpassed consensus EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, V’s 11.84x is 343.1% higher than the 2.67x industry average. Likewise, its 9.87x forward P/B is 155.7% higher than the 3.86x industry average. And the stock’s 12.18x forward P/S is 387.2% higher than the 2.50x industry average.

High Profitability

In terms of trailing-12-month EBIT margin, V’s 67.15% is 849.1% higher than the 7.07% industry average. Likewise, its 70.09% trailing-12-month EBITDA margin is 475.4% higher than the industry average of 12.18%.

Furthermore, the stock’s 51.03% trailing-12-month net income margin is significantly higher than the industry average of 3.87%.

POWR Ratings Reflect Uncertainty

V has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. V has a B grade for Quality, in sync with its high profitability.

It has a D grade for Value, consistent with its stretched valuation.

V is ranked #8 out of 50 stocks in the D-rated Consumer Financial Services industry. Click here to access V’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

Despite delivering solid revenue and earnings growth in the last quarter on solid payments volume and processed transactions growth, V could not impress some analysts as it did not account for a recession in projecting its targets for fiscal 2023. Although the company has guided high-single-digit revenue growth, the recession-free forecast may affect investors’ sentiment in the upcoming months.

Moreover, given its stretched valuation, it could be wise to wait for a better entry point in the stock.

How Does Visa Inc. (V) Stack Up Against its Peers?

While V has an overall POWR Rating of C, you might want to consider investing in the following Consumer Financial Services stocks with an A (Strong Buy) or B (Buy) rating: MainStreet Bancshares, Inc. (MNSB), EZCORP, Inc. (EZPW), and Regional Management Corp. (RM).

V shares were trading at $204.21 per share on Thursday morning, up $0.88 (+0.43%). Year-to-date, V has declined -5.27%, versus a -18.54% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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