Global electronic payment processing giant – Visa Inc. V is scheduled to release its second-quarter of fiscal 2015 financial results after the closing bell on Apr 30.
In the last reported quarter, the company posted break-even results, while the four-quarter trailing average beat stood at 1.9%. Now let us see how things are shaping up for this announcement.
Earnings Whispers?
Our proven model shows that Visa is unlikely to beat earnings as it lacks the required combination of two key components.
Zacks ESP: Visa’s Most Accurate estimate of 62 cents per share is on par with the Zacks Consensus Estimate. Hence, the Earnings ESP, which is the difference between the aforementioned estimates, is 0.00%.
Zacks Rank: Visa has a Zacks Rank #3 (Hold). Though a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes a surprise prediction difficult.
However, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions momentum.
Major Factors Affecting the Past Quarter
Visa roped in some relevant deals during second-quarter fiscal 2015 that will pave the way for long-term growth, the most significant being the one with Costco that will be operative beginning Apr 2016. The acquisition of the Costco portfolio, which has volumes of over $80 billion growing by about 5% annually, is expected to add at least 6 cents per share to Visa’s earnings going forward.
Additionally, recent changes in China’s payment processing policies have opened new growth avenues for Visa. Alongside, the deal inked to acquire TrialPay will further boost the company’s e-commerce payment platform. Taking its cybersecurity to the next level, Visa announced the international launch of Visa Token Service, which will be followed by e-commerce tokenization, while aiming to launch Visa Checkout in 16 countries in 2015. Such steps are expected to combat fraud, improve payment facilities and upgrade customers’ card payment experience.
Even on the balance sheet front, Visa poses a strong capital base with nil long-term debt and a strong cash flow. These factors also boosted the market performance of Visa, while the 4:1 stock-split initiated on Mar 19 has further made the stock affordable for smaller investors, thereby shoring up market demand.
Nevertheless, though Visa is a leader in the electronic payment processing sector, stiff competition and higher operating expenses raise the likelihood of an adverse impact on the company’s operating leverage. In February, the company agreed to transfer its card processing transactions in Russia to a local payment system, the central bank of Russia.
Moreover, consistent regulatory challenges across various jurisdictions, difficult comps, currency fluctuations and sluggish core growth are expected to restrict any significant upside in fiscal 2015. This is also evident from Visa’s top-line growth guidance of low-double digits, excluding a 2% reduction due to negative impact of foreign currency, and bottom-line growth in the mid-teens range in fiscal 2015, lower than 19% growth recorded in fiscal 2014 and 22% in fiscal 2013. Hence, we remain somewhat cautious at present.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
New York Mortgage Trust Inc. NYMT has an Earnings ESP of +8.7% and a Zacks Rank #1.
Santander Consumer USA Holdings Inc. SC has an Earnings ESP of +4.4% and a Zacks Rank #1.
XL Group Plc XL has an Earnings ESP of +2.7% and a Zacks Rank #1.
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