VISA INC. $116 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 813.3 million; Market cap: $94.3 billion; Price-to-sales ratio: 9.8; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.visa.com) operates the world’s largest retail electronic payments network. The company processes credit, debit, prepaid and commercial payments under the Visa, Visa Electron, Interlink and PLUS brands.

Visa’s credit cards are accepted around the world. Visa/PLUS is one of the largest global automated teller machine networks, offering cash access in more than 200 countries.

The company first sold shares to the public at $44; it began trading on New York in March 2008.

The company gets its revenue from fees it charges card issuers and merchants for using its network. These fees are based on payment volume, transactions processed and other factors.

Visa continues to benefit as more people make purchases with credit and debit cards instead of cash. That helped push up the company’s revenue by 46.7%, from $6.3 billion in 2008 to $9.2 billion in 2011 (Visa’s fiscal years end September 30).

Earnings doubled in four years

Earnings jumped 114.7%, from $1.7 billion in 2008 to $3.65 billion in 2011. The company is an aggressive buyer of its own shares. Because of fewer shares outstanding, earnings per share rose at a faster pace of 121.8%, from $2.25 in 2008 to $4.99 in 2011.

In the first quarter of fiscal 2012, which ended December 31, 2011, Visa’s revenue rose 13.8%, to $2.5 billion from $2.2 billion a year earlier. Earnings rose 16.4%, to $1.0 billion from $884 million. The company processed 13.6 billion transactions in the quarter, up 8.1% from 12.6 billion.

Visa spent $75 million on share buybacks during the quarter (it plans to repurchase $500 million of its stock by February 2013). As a result, earnings per share rose 21.1%, to $1.49 from $1.23.

International revenue (which accounts for 46% of the total) jumped 21.1% in the first quarter. U.S. revenue (54% of the total) rose 8.4%. The slower U.S. growth is mainly due to new rules that include a 50% cut in the fees that retailers pay banks when they accept debit cards.

New debit card rules a minor setback

Banks prefer to issue debit cards instead of credit cards, because purchases are made directly from the user’s bank account. That cuts the bank’s credit risk. However, some U.S. banks will probably raise debit fees to recover the lower fees they receive from retailers. Retailers may also try to save money by shifting to other processing networks. These factors would hurt debit volumes.

Visa is working with its clients to modify the fees it charges. This should help it hang on to most of these customers. As well, many of its clients will likely stick with Visa due to its broad geographic reach.

Consumers who use debit cards tend to spend less than credit card users. Still, the long-term outlook for debit cards is bright. In the latest quarter, the dollar value of debit volumes rose 13.1% (excluding the impact of foreign exchange rates) and accounted for 57% of Visa’s total volumes. That’s mainly because of a 19.1% jump in overseas volumes compared with just a 5.9% rise in the U.S.

Visa is also offering more services for processing transactions made with cellphones and other mobile devices. These services have strong appeal in developing countries, where many consumers do not have bank accounts.

To fuel its growth in this area, Visa bought South Africa-based Fundamo for $110 million in June 2011. Fundamo has 5 million subscribers in Africa, Asia and the Middle East who use its technology to transfer cash, pay bills and access their bank accounts through their mobile phones.

In addition, Visa has formed an alliance with U.K.-based Monitise plc, which provides mobile banking services in developed countries. That will help Visa offer more mobile services to its existing cardholders.

New online business looks promising

Visa also aims to take advantage of the growing popularity of video games and social networking websites. That’s why it paid $225 million for PlaySpan Inc., which manages player purchases of such things as extra weapons and extra levels. PlaySpan is used with over 1,000 online games.

The company can easily afford to keep making acquisitions. It holds cash and securities of $3.6 billion, or $4.48 a share, and has no long-term debt.

Thanks to its improving outlook, Visa recently raised its dividend by 46.7%. The new annual rate of $0.88 yields just 0.8%. However, dividends account for just 13% of Visa’s fiscal 2011 earnings, so there’s plenty of room to keep increasing the payout.

Visa should earn $5.85 a share in fiscal 2012. The stock trades at 19.8 times that estimate. That’s a somewhat high p/e ratio, but it’s still reasonable in light of Visa’s strong growth prospects.

Visa is a buy.