What happened
Shares of Visa (V +0.29%) were rising in Thursday trading, up 2.8% as of 1:36 p.m. ET.
Visa's revenue and profits are based on payment volumes running over its global payments rails. That growth is tied to both the pace of card-based payments displacing cash and checks, as well as general economic activity.
Today, a new batch of U.S. economic numbers came in better than expected, which bodes well for economically sensitive stocks like Visa. In addition, Visa also announced a new billion-dollar acquisition that had also been coveted by rival Mastercard (MA +0.69%), also adding to the positive sentiment.
NYSE: V
Key Data Points
So what
On Thursday, new economic data was broadly positive across the board, putting to bed yet again the fear of a near-term recession. On Thursday, the Commerce Department revised first-quarter gross domestic product (GDP) growth to 2%, significantly higher than the previous estimate of 1.3%.
In a second piece of good news, inflation, as defined by the core personal consumption (PCE) index, was also revised downwards by 0.1% in the first quarter to 4.9%.
And if higher growth and lower inflation revisions weren't good enough, a Thursday report from the Labor Department showed last week's jobless claims coming in well below expectations at 239,000, versus 264,000 expected.
All of these data point to a higher probability of a "soft landing," in which inflation continues to decline without significant job losses or low economic growth. That would of course be good for financial companies like Visa, which are dependent on a healthy consumer.
Visa also had a bit of positive company-specific news, as it agreed to acquire Brazilian fintech company Pismo for $1 billion in cash. Pismo provides a cloud-native API platform to support banking services and card issuing across debit, prepaid, and credit cards. Pismo is currently based in Brazil and serves Latin American, Asia-Pacific, and European markets.
While the merits of the acquisition will only be determined by the future performance and synergies associated with Pismo, it was reported that rival Mastercard was also vying for the fintech platform. So the agreement seems like a win for Visa against its biggest rival.
Now what
Visa is generally seen as a defensive growth stock, with a wide moat and continued opportunities as the world moves more and more toward a cashless society. The stock is nearly all the way back to its all-time highs from late 2021 and currently trades at 31 times earnings and 24 times 2024 estimates.
While not exactly cheap, if the economy can continue growing and inflation can come down without significant job losses or hits to growth, it wouldn't surprise me to see Visa, Mastercard, and lagging financial stocks move further to the upside.
