Visa Stock Drops Despite Earnings That Narrowly Beat. What to Know.

“At the highest level, the fundamentals of the business remain quite healthy,” Visa CFO Chris Suh told Barron’s on Tuesday. There’s still room for cross-border spending to catch up to prepandemic levels in Asia and inbound into the U.S., he noted.

The results for the calendar third quarter show that consumers are eager to travel internationally and spend while they are abroad. Visa’s so-called “cross-border” payments volume was up 21% year over year, versus 9% overall. The company processed a whopping $3.2 billion in credit and debit transactions in the period.

On Tuesday evening, Visa (ticker: V) reported revenue of $8.6 billion in the fourth quarter of its fiscal 2023, up 11%, matching Wall Street analysts’ average forecast. Net income was $4.7 billion, or $2.27 per share. After adjusting for one time factors, earnings per share came in at $2.33, versus the $2.25 consensus estimate. That was up 21% from the same quarter a year earlier. Free cash flow came in at $6.6 billion, well above the $4.7 billion expected by analysts.

Visa stock was down 1.5% in premarket trading on Wednesday.

Investors are likely to pay more attention to management’s guidance for the fiscal year ahead than the results from the past three months. Before the report, Wall Street was expecting $36 billion in fiscal 2024 revenue, up 11%, and adjusted earnings per share of $9.81, up 13%.

On Tuesday, Visa’s new management team guided to “high single-digit to low double-digit” revenue growth and “low-teens” adjusted earnings-per-share growth next fiscal year. Those are both at least as good as Wall Street was looking for. There had been some concern from analysts that Visa could miss those consensus targets should management signal concern about the global economic outlook.

“There is still macro uncertainty, but just as in fiscal 2023, I am confident in our ability to manage through it,” CEO Ryan McInerney said on Tuesday’s earnings call.

Visa shares were down 6% since the start of September, as investors looked ahead to the results. The stock also dipped after the company proposed making changes to its somewhat convoluted share structure—making a large block of stock held by U.S. banks available for sale, a potential near-term overhang.

Visa bought back $4.1 billion worth of its stock in the reported quarter, at an average cost of $241.03 per share, versus Tuesday’s closing price of $234.65. On Tuesday, the company announced a new $25 billion buyback authorization and said it would increase its dividend payment by 16%, to 52 cents per share quarterly. That’s good for a 0.9% annual yield.

Over the long term, there’s a lot to like about Visa. The company has an unassailable position in the growing global payment-processing business. Its balance sheet is pristine, with no net debt. The business model has built-in inflation protection, as a percentage of payment volume, and economies of scale—it doesn’t cost Visa much to process another transaction on a network that already exists—so profits rise faster than revenues, at hefty profit margins.

And there’s more growth ahead as the global economy expands and more spending moves from cash to cards. Visa has managed to compound its sales and earnings at a double-digit rate in six of the last seven years, excluding only Covid lockdown-era fiscal 2020.

Despite all those positives, Visa stock’s valuation is at a relative discount to its history and compared with the broader stock market. Shares currently trade for about 24 times estimated earnings over the coming year, versus 27 times for rival
Mastercard
(MA) and Visa’s average of 29 times over the past five years. Visa’s current multiple is a less-than 37% premium over the
S&P 500,
while it historically trades for a 60% premium.

Barron’s recommended buying Visa stock late last year, citing its superior growth prospects, inflation resilience, and valuation discount. Shares have returned about 20% since then, versus 12% for the S&P 500.

Write to Nicholas Jasinski at [email protected]