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Friday January 27, 2012
Visa: The virtual toll road
by Richard Moroney, editor Dow Theory Forecasts Visa (V) controls the entrance to an electronic payment network, a virtual toll road that connects spenders to both lenders and sellers. Consumers, businesses and governments continue to migrate toward the convenience and security of electronic payments, a trend evident in Visa’s operating results. Visa does not issue cards, extend credit, assess cardholder fees, or collect interest. The company derives revenue from fees paid by banks based on the number of transactions (up 12% in fiscal 2011 ended September) and the value of those transactions, or payment volume (up 16%). Over the last five years, the company has delivered annualized growth of 26% for sales and 55% for cash provided by operations. Fatter operating profit margins have allowed earnings per share to rise at least 25% in each of the last eight quarters on revenue growth in excess of 12%. Considering Visa’s exceptional operating momentum and excellent growth outlook, the stock seems reasonably valued. Visa is being added to our buy list. Consensus estimates project strong growth in fiscal 2012 ending September, with per-share earnings expected to climb 17% on 10% higher revenue. Visa sees free cash flow exceeding $4 billion, up at least 29%. The stock has considerable defensive appeal, as growth should continue even if economic growth falters. The balance sheet contains $7.19 billion in cash, or $10.38 per share, and no debt. Buybacks have shrunk the share count more than 10% in the past three years. Learn more about this financial newsletter at Richard Moroney's Dow Theory Forecast. 
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