The stock price of the world’s largest payments processor plummeted after it missed revenue expectations.
Wednesday saw stocks plummet, especially the Nasdaq which dropped 540 points or 3%. The S&P 500 also fell 100 points or 1.8%. The sell-off was likely a result of disappointing earnings from some megacap stocks, such as Visa(NYSE:V).
Visa’s fiscal third quarter was solid, but revenue estimates were missed. The payment processor generated revenue of $8.9 billion, an increase of 10% over the previous year, but it missed estimates by a small amount.
Earnings per share increased 20% to $2.40, in line with expectations.
Visa’s results were mixed, but revenue missed is rare. This likely explains why its stock price fell 3.7% to $255 per share on Wednesday. Visa’s stock price is down 2.3% year-to-date.
Visa has had a tough year, but is this latest dip a good opportunity for investors to buy?
A rare revenue miss
A rare revenue miss
According to Bloomberg the last time Visa missed revenue expectations was in 2020. This is a very rare event.
Visa’s revenue did grow by 10%, but not as much as Wall Street analysts had expected. Payment volume was lower than expected, which is why Visa disappointed on the revenue front.
The amount of money spent by Visa cardholders increased 7% over the previous year, but this was slightly below what analysts expected. Payment volume was also similar to Visa’s second fiscal quarter ending March 31.
Chris Suh, Visa CFO, said on the Q3 earnings call that “in the U.S. the growth in the high-spend consumer segment remained steady compared to previous quarters, but we saw a slight moderating in the lower-spend consumer segment.”
The slow down in the “lower spend” consumer category, which means moderate-to-low-income individuals, is likely due to the higher rates on credit cards, causing consumers to spend less.
The volume of cross-border transactions grew by 14% over the past year, while the number processed transactions grew by 10%.
Lower rates of interest should help
Lower rates of interest should help
Visa has not changed its revenue growth guidance for this fiscal year. It is still expecting low double-digit revenue growth, with earnings per share expected to grow in the low teens.
The company’s expense growth range has been reduced from low double digits to high single digits.
Visa’s fiscal fourth quarter, which ended on September 30, is expected to see low double-digit revenue and earnings growth at the high end of the low double-digit range — same as Q3.
Visa could benefit from a surge in consumer spending if the Federal Reserve lowers its rates as expected.
Should you buy the dip
Should you buy the dip
A number of Wall Street analysts have lowered their price target for Visa based on the belief that growth will continue to slow. Most analysts maintained their buy ratings with a median target price of $310 per share. This would represent a 21% rise over the current price.
Even at the low end of the target price range, $265 per stock, the current level would grow by 4%.
We tend to agree that today’s selloff was more about overvalued tech and big-cap stocks rather than Visa itself. Visa’s numbers were not great, but it has always been one of the fastest-growing companies in the market, thanks to its low overhead and high margins, as well as its duopoly on the credit card industry.
Visa is a good investment right now because it’s relatively cheap, with a P/E Ratio of 28, down from 32 last March, and an Forward P/E of 23. Investors can take advantage of today’s drop in price.
This site is intended for entertainment only and does NOT offer financial advice.
Read more
Here is a link to the article
