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Visa Hits 52-Week-High, Up 8% Since Q2 Earnings: Here’s Why


Visa Inc.’s V solid second-quarter fiscal 2018 results, upward revision of guidance and other recent business developments seem to have favored its stock, pushing it to a 52-week high of $131.00 on May 9. The stock, however, closed the trading day at $130.84.

What Buoyed Up the Stock?

A strong global economy, deal wins, agreements and acquisitions and digital enhancement favored the company and led to a rally in its shares. Since the release of the company’s results on Apr 25, 2018, shares have gained 8% outperforming the industry’s growth of 7%. In a year’s time, shares of the company have returned 43%, higher than the industry’s growth of 38%.

Let’s look at the catalysts causing this bull run.

Solid Q2 Results

Visa fired on all cylinders in its second-quarter release. A robust global economy drove double-digit constant dollar payment volume growth. Cross-border growth accelerated, helped by a weaker dollar. Inbound commerce into the United States grew at double-digits for the first time since the first quarter of fiscal 2014. Outbound commerce from Europe was also up double digits, as the euro and pound strengthened.

The strength in results was reflected by 11% payments volume growth on a constant dollar basis. U.S. payments volume growth of over 10% was 50 basis point higher than last quarter. U.S. consumer debit accelerated 2% with strength across retail and every day spend segments. U.S. consumer credit growth remained robust at 11%, with continued strong growth in travel categories.

International payments volume growth in constant dollars was 11%, up 1% from the last quarter. Growth was strong across Asia, driven by China and Japan. Growth stepped up in Latin America, helped by Brazil. Growth in Europe remained strong and stable. Cross-border volume growth accelerated 2.5% on a constant dollar basis to over 11%.

Guidance Raise

Based on strong second-quarter results, the company now expects low double-digit net revenue growth, compared with high single digits as expected earlier. It expects earnings per share (EPS) growth of low-60s (versus mid-50s earlier) on a GAAP nominal dollar basis and high 20s (high end of mid-20s) on an adjusted, non-GAAP basis (EPS includes approximately 1.5% of positive foreign currency impact and 9-10% of benefit from tax reform).

Upside from Tax Reform

Visa has been a beneficiary of the Tax Cuts and Jobs Act enacted in December 2017. As a result of the tax reform, the company’s effective tax rate for the fiscal second quarter was 19%. This included a 6% reduction related to the U.S. tax reform and the benefit from the successful resolution of a state tax initiative. For 2018, the company expects a tax rate between 21% and 22%. The company expects a 9% to 10% benefit from the impact of the U.S. tax reform to 2018 EPS.

Recent Acquisitions, Deals and Partnerships

A number of partnerships and acquisitions have ratcheted the company’s inorganic growth profile while enhancing its digital capabilities. One of the most notable acquisitions made in March 2018 by the company was that of Fraedom, a SaaS technology company providing payments and transaction management solutions for financial institutions. This deal would strengthen the company’s position in growing its B2B (business to business) solutions.

In January, the company partnered with NovoPayment, a leading enabler of digital financial and transactional services, to facilitate the implementation of payment solutions for B2B transactions in Latin America and the Caribbean.

A day ago, the company the company extended its partnership with PayPal to accelerate the adoption of digital and mobile payments in Canada. Both companies also agreed to extend their participation in the Visa Digital Enablement Program (VDEP) which provides Visa's partners with access to the tokenisation technology, which enables simple and secure payments on mobile phones or any connected device. The partnership with PayPal Holdings, Inc. PYPL will drive the company’s payments volumes.

The company also signed a number of new deals in the second quarter in the United States and across the globe. These deal wins and acquisitions position the company well for business growth.

Is Further Upside Left

The stock has seen the Zacks Consensus Estimate for the current-year and next year earnings being revised upward by 1.2% and 1%, respectively, over the past 30 days, which reflects anlaysts' optimism in the stock. Given the company’s robust fundamentals and strong earnings guidance, its share price is expected to rise in the coming quarters.

Zacks Rank and Other Stock

Visa carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other payment network companies Mastercard Incorporated MA and Evertec, Inc. EVTC also hit its 52 week-high of $191.68 and $21.65, respectively, on the same day.

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