Earnings Outlook: Visa earnings preview: Moving further beyond credit cards

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Visa Inc.’s Thursday afternoon earnings report will cap off a fiscal year in which the payments giant branched further beyond traditional credit and debit cards.

Among Visa’s big areas of focus in fiscal 2019 were Visa Direct, a function that lets users get paid using the card infrastructure, and B2B Connect, a cross-border commercial platform. The company expects both of these to be growth drivers in future, as Visa Direct benefits from trends such as the rise of gig-economy businesses that are looking to pay workers more quickly than every two weeks. B2B Connect allows Visa to tap into a lucrative new market for the company where credit cards don’t get much play.

The company turned to acquisitions as well as it broadened its capabilities. In the June quarter alone, the company made four deals, which Chief Financial Officer Vasant Prabhu said were meant to help Visa extend its reach.

“A lot of what goes on in our industry is you partner with [companies offering new capabilities] because that’s how you extend your network and add more services and all that,” Prabhu told MarketWatch in a mid-September interview. But in the case of its Earthport deal, Visa saw an opportunity to double the amount of bank accounts it could reach, to 99% of those in major countries, by buying the company outright. With its deal for processing company Payworks, Visa pulled the trigger only after first partnering with the German company.

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Cantor Fitzgerald analyst Joseph Foresi wrote in a recent note to clients that “the card network’s ability to expand its addressable market is a key opportunity and area of focus.”

Expect more talk of activity beyond traditional card swipes, dips, and taps when Visa begins discussion of fiscal 2020 on its earnings call Thursday.

Here’s what to expect from the company’s fiscal fourth-quarter report:

What to expect

Earnings: Analysts surveyed by FactSet expect Visa to report $1.43 in adjusted earnings per share for the September quarter. According to Estimize, which crowd sources projections from hedge funds, academics, and others, the average estimate calls for $1.46. A year ago, Visa reported $1.21 in adjusted EPS.

Revenue: The FactSet consensus calls for $6.08 billion in quarterly revenue, while the Estimize consensus models $6.13 billion. In the September quarter of 2018, Visa posted $5.43 billion in revenue. The company has an opportunity to top $6 billion in quarterly revenue for the first time with this upcoming report.

Stock movement: Visa shares have gained following five of the company’s last 10 earnings reports. Shares are up 31% so far this year, as the Dow Jones Industrial Average DJIA, -0.15%  has risen 15%. Of the 38 analysts tracked by FactSet who cover Visa’s stock, 35 have buy ratings, two have hold ratings, and one has a sell rating. The average price target listed on FactSet is $202.11, about 18% above recent levels.

What else to watch for

Cantor’s Foresi said macroeconomic health is at the top of his mind heading into the report, where Visa is expected to give a forecast for fiscal 2020.

“We note there is a heightened focus on consumer demand or global consumption, given investor concerns about a potential future economic slowdown,” he wrote. Foresi is modeling $25.6 billion in annual revenue for the ongoing fiscal year, along with 10% nominal volume growth. He also sees EPS growing 16% to $6.30.

He rates the stock at overweight with a 2020 target.

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Baird analyst Dave Koning sees room for the outlook to disappoint. “We think the stock could be slightly down on F2020 guidance that may be a little below the Street, but we like the stock over the next year because of the high quality compounding nature,” he wrote. Koning rates the stock at outperform with a $206 target price.

Susquehanna analyst Jamie Friedman sees intriguing opportunities for Visa with the Tokyo Olympics coming up in July.

“Surprisingly, Japan has one of the lowest ‘card penetration rates’ in the world—cash remains king there with almost 80% of the volume,” he wrote. “But ahead of the Olympics, the Japanese government has been promoting cards, and the Abe administration announced a 5% rewards-based rebate system. Consequently, we expect Japan payment conversion could add meaningfully to Visa’s growth, with 2020 as a potential watershed year.”

Friedman has a positive rating and $207 price target on Visa’s stock.

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