TheStreet Ratings

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is scheduled to report quarterly earnings after the market close on Wednesday. Analysts are expecting the payment provider to benefit from increasing credit volumes in the quarter.

Analysts expect Visa to report a fiscal third-quarter profit of $1.23 a share, compared with a profit of 97 cents in the year-ago quarter. Revenue is estimated to increase to $2.3 billion from $2 billion a year ago, according to a poll of analysts by Thomson Reuters. The company should continue to gain from a continued transition to non-cash payments, driven especially by increased demand from emerging market countries.

The following is taken from a fiscal second-quarter report published by

TheStreet Ratings

, an independent-research unit of


that uses a quantitative model to evaluate stocks.

Visa improved earnings per share by 28% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Visa increased its bottom line by earning $4.01 versus $3.10 in the prior year. This year, the market expects an improvement in earnings ($4.92 versus $4.01).

We rate Visa a buy. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. Our model has a price target of $103 on shares of Visa, offering the potential for 16% upside from current levels.

The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Visa is extremely liquid. Currently, the Quick Ratio is 2.46 which clearly shows the ability to cover any short-term cash needs. The company's liquidity has increased from the same period last year.

>>For upcoming earnings and estimates, see our

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Visa's gross profit margin for the second quarter of its fiscal year 2011 has increased when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not.

From a valuation perspective, Visa's current price-to-earnings ratio indicates a discount compared to an average of 19.98 for the IT Services industry and a premium compared to the S&P 500 average of 16.45. To use another comparison, its price-to-book ratio of 2.40 indicates valuation on par with the S&P 500 average of 2.21 and a significant discount versus the industry average of 8.06. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium.

Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.