Visa Inc. (V, Financial) is a global payment technology company that operates one of the world's largest electronic payment networks. It provides financial institutions, merchants and consumers with a range of products and services for electronic payments.
Visa’s shares have gained 20.47% over the past year and are up 10.18 % year to date. Yet, I don't think it's anywhere near overpriced territory. There are many things to like about Visa nowadays. The company is close to another important acquisition, it has great growth prospects due to its bet on the future of Africa’s fintech industry and its valuation is attractive.
Visa continues international expansion efforts
According to Bloomberg, Visa is in "advanced talks" and could be close to announcing a deal by the end of June to acquire Pismo, a Brazilian payments company that “helps banks and financial technology companies launch cards and payment products rapidly.”
This shows Visa's continued focus on seeking growth in foreign markets with a lot of business potential. In a similar vein, Visa recently announced the launch of the new Visa Africa Fintech Accelerator program to "help enable Africa’s expanding start-up community through expertise, connections, technology, and investment funding.” According to Visa, "Africa has one of the most exciting and admired fintech ecosystems in the world, bringing outstanding entrepreneurial talent to a young digital-first population that is growing fast."
These international expansion efforts support further innovation and growth potential for Visa, building off a very strong business model that delivers consistent revenue and robust profitability.
Visa has a strong economic moat and a leading position in the credit services industry
Visa's economic moat mainly consists of network effect, brand recognition, infrastructure and technological expertise. Its primary strength lies in its extensive payment network, which connects financial institutions, merchants and consumers worldwide. The more participants that join the network, the more valuable it becomes, creating a strong network effect. This network effect makes it difficult for competitors to challenge Visa's dominance because participants benefit from being part of the widely accepted and efficient Visa payment network. Visa is one of the most recognized and trusted payment brands globally. This brand recognition creates a significant barrier for potential competitors trying to establish themselves in the payment industry.
The payment industry is heavily regulated in many countries, which can create barriers to entry for new players. Visa has a well-established presence and compliance framework that allows it to navigate these regulations effectively. Compliance with regulatory requirements and licenses can be complex and costly, serving as a deterrent for new entrants. Visa's scale and infrastructure play a crucial role in its economic moat. The company's infrastructure, including data centers, processing capabilities and security systems, has been built over many years and requires substantial investment to replicate.
Visa has been at the forefront of technological advancements in the payment industry. It continuously invests in research and development to enhance its payment solutions, improve security measures and adapt to evolving consumer preferences. Visa's technological expertise and innovation capabilities enable it to stay ahead of the curve and maintain its competitive edge in the market.
In addition to Visa's individual strengths, it also benefits from the base business model of payments processing, which has built-in inflation protection and grows alongside economies.
Valuation
Visa’s shares closed at $228.91 on Friday, June 16, with a price-earnings ratio of 30.60, a price-book ratio of 12.44 and a price-sales ratio of 15.58. At first, these figures may not seem impressive from a valuation perspective, but on the other hand, the GF Value chart finds the stock is modestly undervalued based on a combination of historical valuations, past capital gains and analysts' estimates.
At 98 out of 100, the GF Score indicates the company has high outperformance potential based on a historical study by GuruFocus.
The company has a remarkable return on equity of 45.11% as of March 2023, which shows profitability is exceptional.
For a large and mature company with a market cap of about $480 billion, it is very positive to see that it has a five-star GuruFocus business predictability rank, which indicates an average return of at least 12.1% annually over 10 years. The three-year revenue growth has been 10.7%, and analysts from Morningstar estimate a three-year forward revenue growth of 11.27%.
Visa's well-established position, brand recognition, growth efforts and network effect give it a significant advantage over competitors and make it a compelling value opportunity in my opinion. The valuation is cheap compared to the future outlook, with growth prospects expanding in foreign markets.
