What happened
Shares of payment processing superstar Visa (V 0.95%) jumped 10.8% in January according to data provided by S&P Global Market Intelligence. Visa posted an excellent first-quarter earnings report on Jan. 26 and is benefiting from strengthening economic trends.
So what
Visa is the largest credit card payment processing network in the world. It processed $11.6 trillion in 2022, a 12% year-over-year increase, and it consistently ups its game with new technology and advantageous partnerships. Considering its reach, many companies want to work with it, and considering this cycle of growth, it's no surprise that Visa continues to demonstrate strong growth under most -- but not all -- circumstances. I say it that way because it posted revenue drops at the beginning of the pandemic, but that was unusual. And even though we're experiencing inflation and a rough economy right now, Visa is demonstrating increasing revenue and profitability.
In the company's fiscal first quarter, which ended Dec. 31, revenue increased 12% year over year, and earnings per share increased 8%. Part of that was fueled by the recovery in cross-border payments, which have been suppressed by the pandemic. Cross-border volume increased 22% in the first quarter. Even as economists continue to frame conversations about a looming recession, it has not played out that way, and it increasingly looks like there's a chance it won't happen. Visa's performance typically mirrors the economy, and so far it is remaining stable. If the economy is in growth mode, Visa benefits. And if investors have confidence in the economy, Visa stock benefits.
As inflation has been calming down and retail spending is still strong, there are many reasons to be confident about Visa's performance this year.
Now what
Visa is a high-margin business, with a profit margin that hovers around 50%, and it uses its cash to improve its business, as well as create shareholder value. Its payout ratio is fairly low at 22%, and it keeps most of its money to fund ventures and operations. But it does have a solid share repurchase program, and it has raised its dividend every year since 2008. At the current price, the dividend yields 0.78%.
Visa stock outperformed the market in 2022, but it still lost value, and it's about flat over the past year. But with its market-leading position, continuous investing in its business capabilities, and economic trends that are beginning to look more favorable, Visa should reward shareholders for many years.
