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Visa Looks for Earnings Success to Start in 2016

By Dan Caplinger - Jan 27, 2016 at 1:47PM

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Investors in the card-network leader expect better revenue and net income in its coming report.


Image source: Credit Karma via Flickr.

Earnings season is a key time for companies starting out the new year, and given all of the competition in the electronic-payments industry, Visa (V 1.12%) is hoping to get things started on the right foot.

The company has scored some major victories against rival American Express (AXP 0.41%) over the past year, but pressure from other sources in the industry could pose long-term threats to its business model. Visa will announce its fiscal first-quarter results on Thursday, and many investors want to see growth accelerate from 2015's levels. Let's take a closer look at how Visa has fared recently, and what investors should expect in its earnings report on Thursday.

Stats on Visa

Analyst EPS Estimate

$0.68

Change From Year-Ago EPS

7.9%

Revenue Estimate

$3.62 billion

Change From Year-Ago Revenue

7.1%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Which way will Visa earnings go?
Investors haven't been as comfortable in recent months about the prospects for Visa earnings, reducing their fiscal first-quarter projections by a nickel per share and lopping 4% to 5% from their expectations for both this fiscal year and next. The stock has reflected greater pessimism, falling 5% since late October.

Visa's fourth-quarter earnings report showed the resiliency the card giant has shown even in the face of less-than-perfect industry conditions. Visa's revenue rose 11% despite headwinds from weak foreign currencies, and adjusted net income climbed 12%. Visa did an especially good job of keeping costs in line, pushing the share of revenue going toward client incentives down by nearly a full percentage point. Overall, operating expenses rose just 5%, and Visa's efforts to increase productivity through investments in technology contributed to its ability to control costs. Visa's outlook for the 2016 fiscal year was also good, with expectations of revenue growth in a range around the 10% mark.

But the biggest news in recent months came from Visa's decision to acquire one-time subsidiary Visa Europe, paying roughly $23 billion in cash, convertible preferred stock, and potential future earn-out payments. The move should make it easier for Visa to give clients a truly global experience, eliminating what has been a source of confusion for investors and somewhat of a headache for clients. Having greater exposure to Europe will obviously raise Visa's international risk, but over the long run, the global market has had faster growth than the U.S., so that should be a risk-reward trade-off worth making.

Ideally, Visa investors would like to keep seeing the company find new ways to win against its competitors. Last year, Visa's coup in taking over the relationship that American Express had with Costco Wholesale was instrumental in Visa stock moving in the right direction, even as American Express fell sharply over the course of 2015. Unlike American Express, Visa doesn't take on the credit risk of having cardholders under its purview, instead looking to issuing banks to assume that responsibility. But the more retail relationships Visa can help foster, the more volume will flow through its payment networks. That will be increasingly important as retail-industry trends gravitate away from traditional physical point-of-sale transactions and toward electronic commerce via Internet and mobile access.

In the Visa earnings report, investors need to look at how the company is moving forward with its own mobile and online payment solutions. With American Express taking strategic moves to try to streamline its business and find cost savings, Visa will need to stay lean and mean but also keep pushing growth initiatives forward. Given its position in the industry, Visa needs not to let up and instead must find ways to grow no matter what happens in the global economy in 2016 and beyond.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale and Visa. The Motley Fool recommends American Express. 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.

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Stocks Mentioned

American Express Company Stock Quote
American Express Company
AXP
$157.51 (0.41%) $0.64
Visa Inc. Stock Quote
Visa Inc.
V
$215.87 (1.12%) $2.40

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