Contemplating a Purchase of Visa Shares as Current Price Dips Under $378?
Visa, often regarded as a reliable long-term investment, boasts one of the world's largest card payment processing networks. With a staggering 400% increase in its stock value over the past decade and consistent growth even during economic downturns, it's no surprise Wall Street is optimistic about its future.
Among the 37 analysts who cover Visa, an impressive 30 recommend buying its stock, seven suggest holding, and none advise selling. Visa still trades below Bernstein's Harshita Rawat's highest price target of $378, set this month. Rawat foresees its international expansion and tailwinds from a weaker U.S. dollar offsetting its slower domestic growth. In the U.S., she anticipates card volume growth to hold steady despite persistent inflation.
Looking back at Visa's recent history—much like its competitor Mastercard—it doesn't issue cards itself. Instead, it partners with banks to distribute Visa-branded cards, handling payments through its extensive global network and charging a swipe fee per transaction. The company operates with a versatile business model, expanding without taking on excessive credit risk.
During the 2019-2024 fiscal period, ending in September 2024, Visa's revenue grew at a 9% compound annual rate, while EPS rose by 13%. Despite pandemic-induced disruptions, geopolitical conflicts, rising inflation, and interest rates, Visa managed to maintain stable growth.
However, investors should remain mindful of Visa's challenges ahead. For decades, Visa has faced pressure to lower swipe fees in the face of constant merchant demands. In June 2021, a U.S. judge rejected the swipe fee reduction settlement agreement, stating it wasn't sufficient. Under the Biden Administration, the Federal Reserve enacted Regulation II, enabling merchants more payment processing options beyond Visa and Mastercard.
Visa's U.S. business growth slows in comparison to its international operations. Furthermore, potential interest rate reductions, inflation persistence, and a strong U.S. dollar could negatively impact overseas expansion.
On the other hand, under the Trump Administration, a weaker dollar and relaxed regulations could support Visa's long-term growth. If Visa overcomes these challenges and the macroeconomic environment stabilizes, analysts predict a 10% CAGR in revenue and 13% EPS growth between fiscal 2024 and 2027.
At $323, Visa stock appears fairly valued, with a P/E ratio of 26 times next year's earnings. At $378, Visa's stock price would trade at 30 times these estimates. Although some investors may find Visa's stock enticing at its current price, they should carefully evaluate its regulatory and macro challenges before committing to significant investments.
While considering the potential for investing in Visa, it's essential to keep in mind the ongoing challenge of reducing swipe fees due to merchant demands. (finance, money, investing)
After analyzing Visa's financial growth, some investors might find its current stock price of $323 to be fairly valued, but careful consideration of the company's regulatory and macroeconomic challenges is crucial. (finance, money, investing)
