|
Proprietary Data Insights Financial Pros Credit Card Searches in the Last Month
|
|
Credit Cards |
|
As Long as Consumers Spend, This Stock Will Rise
|
|
|
The rising cost of inflation is eating away at consumers. According to Bankrate, average credit card rates are at 18.7%, the highest level in 30 years. It’s no surprise financial pros are investigating credit card companies now, as they are highly profitable businesses. Visa(V) is the largest player in the space, and the most searched credit card company by financial pros over the last month. Despite a difficult economy, Visa grew revenues +20% in the last year. Is that all about to change? Visa’s Business Visa is the largest publicly traded credit card company. It facilitates payment transactions between consumers, merchants, financial institutions, and government entities across more than 200 countries and territories. Through Q3 2022, the company had 1.2 billion credit cards and 2.8 billion debit cards. Unlike competitors like American Express (AXP), Visa does not carry consumer debt or loans. It simply processes transactions. Visa breaks its revenues down into the following categories: service, data processing, international transactions, client incentives, and other. More than 50% of the company’s sales are outside the U.S., making it one of the most globally recognized names. Financials Despite increasing competition from fintech, V continues to grow its revenues. The firm did $24 billion in revenues in 2021, and its 12-month trailing revenues are $29 billion. While most people don’t think of Visa as a growth company, it has nearly doubled its revenues in the last six years. Meanwhile, the firm is rewarding investors along the way. Share repurchases and dividends have returned $2.9 billion of capital to shareholders. Moreover, it increased its quarterly cash dividend by 20% to $0.45 per share and authorized a new $12 billion share repurchase program. V has $18.5 billion in total cash and total debt of $22.4 billion. Its 1.45x current ratio is further proof of the company’s financial strength. Valuation V trades at a P/E GAAP ratio of 28x, notably lower than its 5-year average of 36.5x. But besides Mastercard(MA), its competitors are lower. For example, Discover Financial Services (DFS) has a P/E GAAP ratio of 6.4x, American Express (AXP) 14.5x, and Capital One Fincancial (COF) 5.4x. V trades at a price-to-sales ratio of 13x, slightly better than MA but materially higher than DFS at 2.6x, AXP at 2.2x, and COF at 1.4x. The combination of market dominance, growth, profitability, and dividend safety are reasons investors don’t mind paying a premium for V. Profitability V is a highly profitable company. Its net income margin of 51% can’t be touched by any of its competitors. The same is true for its EBITDA Margin of 70% and EBIT margin of 67%. Moreover, the firm is a cash cow. It generates $18.8 billion in cash from operations. Only AXP comes close at $17.6 billion. Its gross profit margin of 97% is only topped by MA at 100%, which is likely an accounting aberration. Growth Despite a difficult year for the economy, V has grown substantially. During a recession, consumers are more likely to rely on credit cards to cover their expenses. V has grown revenues by 21.5% over the last year. Only M grew revenues at a faster pace. Our Opinion 8/10 V is in a strong financial position as it continues to stretch its lead in the credit card business. The firm recently increased its dividend and a new share repurchase program. We’d wait for a dip in the $185 range for an entry to establish a long-term position. |
|
News & Insights |
Just Spilled
|
|
Want to get content like this directly to your inbox? |