Why Visa Will Move the Dow Tomorrow

The credit card network weighs in with its earnings report Thursday.

Jul 24, 2014 at 11:00AM

It's been a long week for the Dow Jones Industrials (DJINDICES:^DJI), as a sizable group of component companies has reported earnings. This afternoon, Visa (NYSE:V) is poised to become the final Dow member to report this week; what the credit card network giant says will have ramifications not just for fellow Dow component American Express (NYSE:AXP) and the rest of the financial industry, but for the technology giants that are becoming an increasingly important part of the electronic payments network.


Visa is scheduled to announce its earnings after the market closes. The company will follow up its quarterly report with a conference call set to begin at 5 p.m. EDT.

Shareholders have reasonably high expectations for Visa this quarter, with investors looking for a double-digit percentage gain in earnings per share and solid growth on the top line. The stock has performed reasonably well recently, but as the Dow climbs, investors have become a bit more cautious about whether growth stocks such as Visa have the staying power to keep supporting the broad bull market in stocks.

Overall, Visa has benefited from relatively favorable economic conditions lately that have helped to bolster spending. Unlike American Express, Visa doesn't bear any credit risk, and that insulates Visa to a large extent from the dramatic shifts in credit-worthiness among its customer base. That also means that Visa has to settle for lower margins than American Express, which has developed a reputation for being more exclusive in choosing its card members than Visa's issuing financial institutions. Yet as long as consumer spending remains stable or grows consistently, Visa can count on steady growth from its core businesses.


Yet Visa has to watch out for competition from outside its traditional business. The mobile revolution has brought electronic payment systems to the forefront, as consumers seek the most convenient options to pay for goods and services. Electronic wallets promoted by major technology powerhouses would effectively remove Visa as an intermediary between merchants and customers, and that trend poses a threat to the entire credit card model. In fact, Visa sees that threat as substantial enough that it has joined forces with American Express and other card network companies to develop a mobile-based payment solutions. Investors can only hope that Visa and its consortium are successful in heading off the possible defection of huge portions of its business in the future.

Visa has the power to move the Dow tomorrow, especially given that it has the highest share price among the 30 components on the price-weighted Dow. With such a strong weighting, anything that leaves investors wanting more from the credit card network company could pull the entire Dow Jones Industrials down with it.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends American Express and Visa. The Motley Fool owns shares of Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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