Shares of Visa (NYSE: V) hit a 52-week high yesterday. Let’s look at what’s driving these gains to better understand what the future holds for this company.
How it got here
It’s been a great year to invest in payment-processing companies. Visa isn’t even the best-performing stock in this sector. It earns a bronze medal by placing just behind Discover Financial Services (NYSE: DFS) and eBay (Nasdaq: EBAY) -- which has been riding the strength of PayPal, although I hear it also dabbles a bit in e-commerce, as well.
V Total Return Price data by YCharts
Bringing up the rear are American Express (NYSE: AXP) and MasterCard (NYSE: MA). Discover and eBay recently combined forces, which ought to provide both with further momentum through the rest of the year. MasterCard enjoyed a small pop of late to pull away from a flatlining AmEx, but both MasterCard and Visa remain at legal risk from retail trade groups, which aren’t happy with a swipe-fee suit settlement and are seeking to stop it.
These companies have all earned their stock prices with impressive earnings growth over the past few years:
V Net Income TTM data by YCharts
Visa’s chart looks uglier than the rest, but that’s due to settlement charges of $4.1 billion. Adjusted earnings for the company’s most recent quarter were 25% higher than the year-ago period. Keeping that in mind, let’s take a look at some key statistics for this sector to figure out how Visa stacks up.
What you need to know
That one-time charge really skews some of Visa’s numbers, so it looks weaker than it actually is:
|
Company |
P/E Ratio |
Price to Levered Free Cash Flow |
Net Margin (TTM) |
Projected Growth Rate (2013) |
|---|---|---|---|---|
| Visa | 65.1 | 16.9 | 13.5% | 16.4% |
| MasterCard | 26.8 | 19.2 | 29.7% | 17.3% |
| Discover Financial | 8.9 | NM | 35.9% | (4.8%) |
| American Express | 13.4 | NM | 17.1% | 7.7% |
| eBay | 16.9 | 58.3 | 28.7% | 16.2% |
Source: Yahoo! Finance. NM = not material due to lack of results.
Forbes offers a normalized P/E of 24.5 for Visa, which is right in line with MasterCard, befitting their status as reasonably high-growth companies with excellent cash flow levels. Every company on this list has joined the Mobile Payments Committee, which could easily accelerate mobile payments adoption, and bring America (and the world) closer to an entirely paperless lifestyle.
Declining levels of consumer credit haven’t posed short-term risks, but it could be an issue in the long run if enough people pay down their balances, and live within their means, instead of becoming indebted. Wait. Who am I kidding? Any country that thinks Octomom should hawk payday loans isn’t one that’s going to suddenly get sensible about debt.
What’s next?
Visa may have a little short-term trouble from reticent retailers, but that’s not likely to stop it from capitalizing on the longer-term trend towards credit -- and occasionally debit -- over cash. The Motley Fool’s CAPS community has given Visa a four-star rating, with 95% of our CAPS players expecting the company to continue beating the Street. With Visa eyeing an untapped Chinese market that’s now finally open for business, they’re likely to be right.
Interested in tracking this stock in the months and years ahead? Add Visa to your Watchlist now, for all the news we Fools can find, delivered to your inbox as it happens. You may also want to think about ways to play the retail space that Visa depends on for growth. The Fool’s got some premium retail stocks with room to run detailed in our latest free report, and all three should help funnel a lot of consumer cash back to Visa in the years ahead. Click here to find out more at no cost -- no credit card required!
