Visa revenue: Stock rebounds on strong travel demand (NYSE: V)


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Fintech stocks took a hit in 2022, but Visa (NYSE:V) may have provided some light that these stocks may be ready to break through. Prior to reporting its second quarter results, Visa shares were trading down $50 from recent highs, equating to a 50% pullback from its 52-week high.

However, on Tuesday the company reported strong second-quarter results on strong travel demand. I remain bullish on this stock, which I’ve alluded to in my YouTube videos that the company has a huge tailwind based on pent-up demand from worldwide travel.

Rise in travel fuels strong earnings

Visa reported strong second-quarter results this week, even with higher analyst estimates, as they priced in travel demand. We saw it big based on the strong results of domestic airliners such as United Airlines (UAL) and American Airlines (AAL) which had huge quarters. United Airlines CEO Scott Kirby was quoted in his quarterly earnings call as saying:

“I have never seen in my career, and I have been in this industry for a long time, such an increase in demand for hockey sticks.”

https://www.cnbc.com/2022/04/20/united-airlines-ual-1q-22-earnings.html

United Airlines

That’s exactly what we see when it comes to Visa, and the exciting part was that summer is yet to come, often the greatest travel time of the year.

The credit card company reported Second-quarter 2022 revenue of $7.2 billion, easily beating analysts’ expectations of $6.8 billion, a difference of $400 million. Revenue for the quarter increased 25% over the prior year.

In terms of earnings, Visa reported adjusted EPS of $1.79, again easily beating analysts’ expectations of $1.65. Earnings per share increased by 30% compared to the previous year.

So what led to this stellar neighborhood? Travel demand has increased dramatically. In March alone, the TSA saw a 65% increase in the average number of daily travelers passing through checkpoints at US airports. These March travelers are up 105% from March 2020 numbers.

In the first three weeks of April, the average number of daily travelers through TSA checkpoints increased 53% from 2021 and 1,885% from April 2020, showing the strong resurgence.

The increase in travel has a direct impact on credit card companies like Visa. The company’s strong second quarter saw payments volumes increase 17% year-over-year, cross-border volume 38% and transactions processed 19%.

https://s1.q4cdn.com/050606653/files/doc_financials/2022/q2/Q2-2022-Earnings-Release-_FINAL.pdf

Q2 Visa Earnings

Visa tracks both card-present and card-not-present spending, providing insight into physical retail industry locations as well as consumer e-commerce spending. Another metric showing increased travel and consumers feeling comfortable returning to stores is the 17% growth Visa saw in card spend, which was also 21% higher. above 2019 levels, which is very remarkable.

China still remains a boring area for the company due to its current pandemic policy, but management believes the tailwind of the journey has only just begun. Chief Financial Officer Vasant Prabhu, noted that:

the pace of travel recovery to and from Asia will be a key driver of the future trajectory.”

No price for heavy travel season

After reporting the company’s second-quarter results, shares of V rebounded nearly 10% over the next two days. Currently, Visa shares are trading with a P/E of 32x. Over the past five years, shares of V have traded with an average P/E of 34x.

https://app.fastgraphs.com/fastgraphs/fv/historical/d?ticker=V:US&divcode=dvxps&hpeov=&op=opeps&investAmt=10000&reinv=false&isLog=false&splits=splitspinoffadj

Quick graphics

Analysts expect the company to end the year with adjusted earnings of $7.15 and then $8.40 in 2023, representing growth of 21% and 17%, respectively, over the next 18 months. Using 2023 EPS estimates, this would have shares of V trading at a forward P/E of 26x, which is well below their 5-year average valuation.

https://app.fastgraphs.com/fastgraphs/fv/forecasting/feEstimates?ticker=V:US&divcode=dvxps&hpeov=&op=opeps&investAmt=10000&reinv=false&isLog=false&splits=splitspinoffadj

Quick graphics

If the company is able to meet these expectations and the shares are trading at the same valuation, investors could be looking at a rate of return close to 30%. As noted above, analysts were expecting 21% growth this year, but I think we could see more given travel demand. March was the strongest month in years, and we saw April continue the trend, more and more on the road or in the sky.

Key takeaway for investors

It’s well known that travel demand exists, but it’s hard to see how it impacts Visa’s stock price, especially ahead of the earnings release. The second quarter results further supported the idea that Visa will be a major beneficiary of the return of travel during this spring and summer season ahead of us.

Currently, 17 analysts who cover Visa have an average rating of “Strong Buy” on the stock with an average price target of $273.60, implying a 24% upside from current levels.

Tipranks.com

Tipranks

The valuation definitely looks intriguing for long-term investors. Visa also sports a dividend of $1.50 per share, which equates to a low dividend yield of 0.70%. Although the yield is weak, the company has been very strong in terms of dividend growth. Over the past five years, Visa has increased its dividend by an average of 18% per year. Additionally, the company has increased the dividend for 13 consecutive years now.

After a nice rise in the stock, look for any pullback as an opportunity to add to that dividend growth stock.

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