Visa: License To Buy

Company Overview:

Visa Inc. (V) is the world’s largest global payments company, with a proprietary network that interlinks banks, retail merchants and payment houses around the world. It is part of a unique league of financial services companies that do not issue cards or extend credit to customers, but instead offer payments products and services in partnership with banks and merchants to facilitate the transfer of money.

The company, headquartered in Foster City, California, was recently added as a component of the Dow Jones Industrial Index (Dow 30), along with the Goldman Sachs Group, Inc. (GS) and Nike, Inc. (NKE). With Visa’s purchase volumes making up a substantial chunk of total US retail sales, the company’s financial performance is a primary indicator of the level of consumer spending in the American economy.

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Visa Investors Surprised By Earnings Miss

Visa Inc. (V), the world’s largest payment processing company by revenues, reported its fourth quarter (4Q) earnings for fiscal year (FY) 2013 on October 30. The results were modest and failed to capture the interest of investors, who were expecting a stellar performance, given that card service companies have performed quite well in recent quarters. The share price of Visa fell 2% following its earnings release.

Earnings Overview

For the latest quarter, Visa reported a net income of $1.2 billion, up 15% from the same quarter last year. Diluted EPS (earnings per share) were $1.85, a 20% better result than $1.54 in 4QFY12. Net income for the fiscal year ending September 30, 2013 increased 18% to $5 billion, which translated to per share earnings of $7.59. EPS was 23% higher than it was in FY12 but missed analyst estimates by a minute 0.07%.

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Growth Portfolio Semi-Finals: Visa Vs. Polaris

In the semi-finals round of the Growth Portfolio playoffs we have #10 seeded Polaris Industries Inc. (PII) taking on #3 seeded Visa Inc. (V). Visa is a global payments and technology company that connects consumers, financial institutions, and merchants. Polaris designs, engineers and manufactures off-road vehicles including all-terrain vehicles and side-by-side vehicles for recreational and utility use, snowmobiles, and on-road vehicles including motorcycles and small electric vehicles.

The following table depicts the recent earnings reports for each company:

Ticker	Earnings Date	Actual EPS ($/share)	Estimated EPS ($/share)	Actual Revenue ($ in billions)	Estimated Revenue ($ in billions)
PII	22Oct13	1.64	1.61	1.10	1.05
V	30Oct13	1.85	1.85	3.02	3.04

Polaris is up 56.32% in the past year excluding dividends (up 57.61% including dividends), while Visa is up 35.83% excluding dividends (up 36.4% including dividends). Both are beating the S&P 500, which has gained 23.57% in the same time frame. This matchup will be played out in a best of seven game series based on the metrics below. For a complete list of all the metrics utilized in the seven game series click here. Not all the metrics will be looked at if a team can win and win early. This matchup will determine the winner which will go on to play for the Super Bowl against either General Motors (GM) or Gilead Sciences (GILD).

Forward P/E

Forward P/E is the metric of how many times future earnings you are paying up for a particular stock. The earnings portion of the ratio I utilize is the earnings value for the next twelve months or for the next full fiscal year. I like utilizing the forward P/E ratio as opposed to the trailing twelve month P/E ratio because it is an indication of where the stock is going to go in the future. 

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