Visa (V) hit a new all-time high this morning after the company beat second quarter estimates and guided fiscal 2018 to the high end of its previous outlook.
Visa is a payment network that essentially owns a currency brand. The secular shift towards electronic payments (debit and credit cards) was a strong theme when the company went public nine years ago, and the story remains pretty strong. Investors who bought on the day of the IPO are up over 500% without including dividends.
Visa has missed earnings estimates just twice since its IPO in 2008. The company tends to beat on the top line as well.
Visa reported second quarter adjusted EPS up 27% to $0.86 as revenue grew 23% to $4.5 billion. Foreign exchange was a 2.5% headwind on sales growth.
Payments volume growth, on a constant dollar basis, for the three months ended December 31, 2016, on which fiscal second quarter service revenue is recognized, was 39% over the prior year at $1.8 trillion. Cross-border volume growth, on a constant dollar basis for the three months ended March 31, 2017, was 132%. Cross-border volume growth, on a constant dollar basis and inclusive of Europe in prior year results, was 11%. Total processed transactions grew 42% to $26.3 billion.
Visa guided fiscal 2017 to the high end of it prior range of mid-teens adjusted EPS growth and 16-18% net revenue growth. Foreign exchange represents a low single digit headwind to both metrics.
CEO Alfred Kelly: "Robust growth in payments volume, cross-border volume and processed transactions drove better than expected results. Looking ahead, we are continuing our efforts across the globe to electronify commerce and digitize economies to the benefit of consumers and societies alike."
Visa also added $5 billion to its share repurchase program after buying $3.5 billion worth of stock in the first six months of its fiscal 2017.
Note that American Express (AXP) and Discover (DFS) own payment networks but are also typical financial institutions in the sense that they are lenders.
Visa and MasterCard (MA) are just payment networks. They are simply riding the secular shift to electronic payments and enjoy health operating margins in the mid-50% on an adjusted basis.
Visa has a ~$212 billion market cap and trades at ~18x EV/EBITDA and 27x adjusted EPS estimates. Not coincidentally, MasterCard (MA) trades at 17.5x EV/EBITDA and ~27x adjusted EPS estimates with its more modest $123 billion market cap.
AmEx has a $72 billion market cap and trades at ~14x adjusted earnings estimates while Discover has a $25 billion market cap and trades at ~11x earnings.