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Is Visa a Buy After Recent Stumble? Here’s What Analysts Think

TipsForTraders | July 19, 2024

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Visa (NYSE: V), the payments giant that has dominated the credit card industry for decades, is facing a period of uncertainty. The stock has fallen 7.3% since its March 21st record high, and investors are worried about the company’s future profitability in the face of potential regulations, litigation, and market saturation.

This article dives into the current headwinds Visa is facing, analyzes the company’s underlying strength, and explores why some analysts believe the recent dip presents a compelling buying opportunity.

A History of Dominance, Recent Stumbles

For nearly two decades, Visa has been a powerhouse in the financial sector. Alongside Mastercard (NYSE: MA), the two companies have formed a near-unbreakable duopoly on credit card transactions. This dominance has translated into impressive returns for investors, with Visa stock boasting a 22% annualized return over the past 15 years, significantly outperforming the broader market.

However, recent years have seen Visa’s stock falter. The initial underperformance began during the pandemic, but it accelerated in 2024 after a federal judge rejected a settlement between Visa and Mastercard with merchants regarding transaction fees. The market fears that the companies will be forced to reduce these fees, impacting their bottom line. As a result, Visa stock has significantly lagged the S&P 500 this year, rising a mere 3.4%.

Is the Recent Sell-Off Overdone?

With the stock price down, some analysts believe it’s time to consider Visa as a buying opportunity. They acknowledge the valid concerns surrounding regulations, litigation, and market saturation. However, they argue that these factors have already been priced into the stock, and the recent sell-off has been excessive.

J.P. Morgan analyst Tien-tsin Huang highlights this sentiment: “While these concerns are reasonable, we believe the recent underperformance is overdone. The company’s strong fundamentals remain intact.”

Earnings Season: A Potential Catalyst?

Investors will be closely watching Visa’s upcoming earnings report on July 24th for signs of the company’s resilience. Analysts expect Visa to report a 12% year-over-year increase in earnings per share, driven by continued growth in transaction volumes and share buybacks.

The ongoing shift towards digital and card payments globally, coupled with modest inflation pushing up transaction sizes, positions Visa for continued growth. Additionally, the company’s robust cash generation allows it to repurchase shares, further boosting earnings per share.

Analyst Optimism: More Than Meets the Eye?

Analysts are generally confident that Visa will meet or exceed Wall Street’s expectations. While some banks have reported a slowdown in credit card usage, analysts like Bryan Bergin of TD Cowen point out that volumes remain relatively unchanged compared to the previous quarter. Consumer spending also appears to be holding up.

Beyond meeting earnings targets, analysts believe the results themselves could be a catalyst for the stock price. At its current price, Visa trades at a valuation that is lower than pre-pandemic levels. While still more expensive than the S&P 500, the valuation gap has narrowed significantly compared to five years ago. This suggests that the market has already priced in much of the negativity surrounding the company.

Citigroup analyst Ashwin Shirvaikar summarizes the bullish outlook: “With the valuation at multi-year lows and strong fundamentals, current levels present an attractive buying opportunity.”

Conclusion: A Calculated Bet on the Future of Payments

While the future holds uncertainties for Visa, the company’s dominant market position, ongoing growth in digital payments, and healthy financials suggest it has the tools to navigate the current headwinds. Investors considering Visa should carefully weigh the potential risks against the company’s long-term prospects and the attractive entry point presented by the recent sell-off. Ultimately, the decision to buy Visa stock will depend on individual risk tolerance and investment goals.