Over the last 10 years, shares of Visa have been on a one-way trip to the moon. The stock is up over 300%. Investors have been spoiled by double-digit revenue growth, but this year growth has slowed.
Management has given guidance for full-year revenue growth of 7% to 8%.
For third-quarter fiscal 2016, Visa reported net operating revenue of $3.63 billion, up 3.2%, and earnings per share of 69 cents. Total payment volume was $1,253 billion, up 12% on a constant currency basis (or 7.2% on actual basis). U.S. payment volume was up 10.6%, while international volume was up just 3.3%.
Total processed transactions were 19.8 billion, up 10%, and service revenue was $1.6 billion, up 6%. International transactions revenue grew 4% to $1.1 billion.
Visa reports fourth-quarter fiscal 2016 earnings Monday night after the close. Analysts are looking for revenue of $3.9 billion, up 10.8%. Revenue is expected to be up 3.2% sequentially because of seasonality. Earnings of 73 cents per share are at the high end of estimates because of a wide variation of foreign exchange assumptions.
Operating margins are forecast to be 63.9%, which would be flat with last year.
Payment volume and the number of transactions moving through Visa's systems drive revenue. Payment volume of $1,814 billion should be up about 4%. Last year, payment volume fell 4.3%. Processed transactions should increase 9%, in line with last year's 8% growth.
Next year, revenue is expected to be up anywhere from 11% to 21%, depending on foreign exchange and economic assumptions. But most of that revenue "growth" will come from the addition of Visa Europe, which the company recently purchased. The deal will hit the books in the first quarter. Revenue in fiscal 2018 is expected to drop back to mid-to-high single digits.
In my opinion, this is stock is overbought and overvalued. Right now, the stock is trading at 25 times 2017 forward estimates of $3.33 per share. And those earnings estimates are driven off revenue growth of 19%, which seems pretty aggressive. In 2015, Visa had 15% revenue growth, 5% in 2014 and 17% in 2013. Even with the additional Costco (COST) - Get Costco Wholesale Corporation Report business and Visa Europe, 19% revenue growth seems high in this environment.
I would stay on the sidelines and wait for a better price before charging ahead.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.