Current Situation of Visa's Shares
Visa's (NYSE: V) stock has increased around 22% year-to-date, surpassing the 23% climb of the S&P500 index. On the other hand, Mastercard (NYSE: MA) has recorded approximately 23% growth. So, what factors have contributed to Visa's recent stock performance?
The company surpassed market expectations in the fourth quarter of FY 2024, posting net revenues of $9.6 billion, a 12% increase compared to the previous year. Various factors are fueling Visa's growth. Cross-border volumes surged by 13% year-on-year, driven by increased international travel and e-commerce expansion. The total number of processed transactions, referred to as Total Processed Transactions, increased by around 10%. Additionally, if you're looking for higher returns with a smoother ride than individual stocks, consider the High-Quality Portfolio, which has outperformed the S&P by more than 91% since its inception.
Earnings have also been on an upward trajectory, with adjusted net income increasing by 13% year-over-year to reach $5.4 billion. Visa's business model is characterized by high operating leverage due to its extensive networks and high fixed costs with lower variable expenses. This means that profits can grow faster than revenues. Visa's Adjusted EPS rose by 14% due to a decrease in share count as a result of stock buybacks.
It's worth noting that the drop in V stock's price over the past 4-year period has not been uniform, although annual returns have been less volatile than the S&P 500. Returns for the stock were 0% in 2021, -3% in 2022, and 26% in 2023. However, the Trefis High-Quality Portfolio, consisting of 30 stocks, is less volatile and has outperformed the S&P 500 each year during this period. Why is this the case? The portfolio's stocks delivered better returns with lower risk compared to the benchmark index, providing a less erratic ride, as indicated by the HQ Portfolio's performance metrics.
Visa stock has faced regulatory challenges this year. The U.S. Justice Department accused Visa of operating a debit market monopoly in the U.S. by suppressing competition. Despite this, the stock has shown significant recovery since September, with investors appearing optimistic that these issues will not adversely impact Visa in the long term. Possible solutions for the company could include adjusting its operation strategy in the U.S. debit market to promote more competitive behavior and continue business as usual.
Furthermore, the election of Donald Trump as U.S. President may result in a more lenient regulatory environment for financial players and potentially ease antitrust sentiment. Lastly, the Federal Reserve has lowered interest rates three times since September. This decrease is likely to stimulate consumer spending, decrease borrowing costs, and, in turn, boost Visa's transaction volumes. Visa has also focused on enhancing its shareholder returns through share repurchases and dividends, totaling $6.8 billion during the fourth quarter. It also increased its quarterly cash dividend by 13% to $0.59 per share. Our analysis estimates the value of Visa stock at around $309 per share, which is in line with the current market price. For further insights, check out our Visa valuation analysis.
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Visa's strong financial performance, as evidenced by the 12% increase in net revenues during the fourth quarter of FY 2024, could have played a role in the company's stock gaining around 22% year-to-date. This revenue growth was largely driven by a surge in cross-border volumes and an increase in the total number of processed transactions.
Given Visa's high operating leverage and extensive networks, it's not surprising that profits can grow faster than revenues. This was evident in the 13% increase in adjusted net income and the 14% rise in Adjusted EPS in the same period. The company's focus on shareholder returns, such as stock buybacks and dividends, also contributed to its positive stock performance.
