Every Thursday we bring you one of our best U.S. stock picks. You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, most often from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster.
VISA INC. (New York symbol V; www.visa.com) operates the world’s largest electronic payments network, through which it processes credit, debit, prepaid and commercial transactions.
Visa gets most of its revenue from fees it charges the card issuers and merchants that use its network. It bases these fees on transaction volumes and other factors. The banks that issue the cards are responsible for evaluating customer creditworthiness and collecting payments, not Visa.
Thanks to the continued growth of online shopping, which has encouraged more credit and debit card use, Visa’s revenue rose 57.5%, from $8.1 billion in fiscal 2010 to $12.7 billion in 2014 (fiscal years end September 30).
Earnings shot up 92.9%, from $3.0 billion in 2010 to $5.7 billion in 2014. Visa is an aggressive buyer of its own shares, including $4.6 billion worth in fiscal 2014. That’s why its earnings per share soared 132.0%, from $3.91 to $9.07.
Over the past few years, retailers have accused Visa and other card companies of unfairly fixing the fees they must pay when customers make credit and debit card purchases. Visa has set aside $1.5 billion to settle these and other claims.
Excluding this amount, the company ended fiscal 2014 with cash of $2.0 billion and no debt. Visa’s strong balance sheet will let it continue to invest in its networks, which will keep its operating costs down.
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Stock advice: Teaming up with Apple gives Visa new service for iPhone payments
Visa recently teamed up with Apple to launch Apple Pay, a service that lets users pay for purchases with their iPhones instead of a card.
Visa helped design Apple Pay to protect sensitive customer information. This alliance also helps prevent Apple from setting up a rival payment system.
The company now plans to adapt the underlying technology to other mobile devices. That will help it profit from the increase in mobile payments: in 2013, worldwide mobile e-commerce volumes jumped 56%.
Debit cards are another growth area for Visa: the company’s debit volumes rose 6.7% in the fourth quarter of fiscal 2014, and accounted for 55.8% of its total.
Visa now plans to buy back $5.0 billion worth of shares, with no time limit on these purchases. It also recently raised its dividend by 20.0%. The new annual rate of $1.92 yields 0.7%.
The stock has soared 242.2% since we first recommended it at $76 in our December 2010 issue.
It now trades at 24.6 times the $10.46 a share that Visa will probably earn in fiscal 2015. That’s still reasonable in light of the company’s well-known brand, strong international growth prospects and gross profit margins of more than 60%.
Visa is a buy recommendation of our advisory on U.S. investing, Wall Street Stock Forecaster.
Tomorrow Pat answers a question about a Canadian engineering firm that’s piling up the acquisitions.
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