Credit card VISA

Visa Q3 Profit Plunges 23% as Consumers Cut Spending Amid COVID-19 Crisis; Target Price $210

Visa Inc, the world’s largest card payment company, reported that its quarterly profit plunged 23% in the third quarter of fiscal 2020 as large-scale layoffs due to the lockdowns, aimed at limiting the spread of coronavirus, dented consumer spending.

The global technology payment company, which has a presence in more than 200 countries, said in the quarter ended June 30, its net income fell to $2.4 billion, or $1.07 per share, compared to $3.10 billion, or $1.37 per share, seen a year earlier.

Just after the result, Visa shares fell about 2% after market hours, closed 0.1% lower at $196.74 on Tuesday. So far, the deadly virus has infected more than 16.57 million people in 210 countries and killed over 650 thousand.

“Visa’s F3Q20 results were slightly ahead of our expectations, but positive US volume trends seem to flatten vs. late June as we had feared. Cross-border volumes have stabilized but remain under pressure – a trend we expect will continue through FY20. We expect the stock to be range-bound near term,” said George Mihalos, equity analyst at Cowen.

Visa’s payments volume for the three months ended June 30, 2020, decreased 10% over the prior year on a constant-dollar basis and total processed transactions, which represent transactions processed by Visa, were 30.7 billion, a 13% decrease over the prior year.

The company said its cross-border volume excluding transactions within Europe, which drive their international transaction revenues, declined 47% on a constant-dollar basis. Including cross-border transactions within Europe, the decline on a constant-dollar basis was 37% in the quarter. Net revenues fell 17% to $4.8 billion.

“Domestic recovery appears to have stalled and no sign of a bounce in cross-border in updated volumes through July 21st. The uptrend in domestic volumes has stalled July MTD, with growth rates showing modest deceleration relative to the start of the month likely the result of recently tightened COVID-related restrictions in several key states,” said Trevor Williams, equity analyst at Jefferies, who gave a price target of $185.

“Interestingly, while card-present growth has remained largely flat relative to 2H June, card not present growth (ex-Travel) has decelerated modestly from early in July, though as stayed in a fairly consistent band of +30-40% y/y growth since early June. Cross-border growth remains depressed excluding intra-Europe transactions, down more than 40% y/y MTD in July, which marks a slight deceleration relative to trends in early June.”

Executive comment

“We continue to focus on managing our business for the medium and long-term despite the challenges of the global pandemic. In the quarter, we were pleased to see strong growth in areas that are strategically important, including eCommerce, tap to pay, new flows and value-added services. We remain committed to our strategy and are thoughtfully investing to fuel Visa’s future performance,” said Chairman and Chief Executive Officer Alfred F. Kelly.

Visa stock forecast

Nineteen analysts forecast the average price in 12 months at $211.58 with a high forecast of $247.00 and a low forecast of $188.00. The average price target represents a 7.54% increase from the last price of $196.74. From those 19, 17 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $203 with a high of $277 under a bull scenario and $137 under the worst-case scenario. Evercore ISI raised its target price to $247 from $226; Piper Sandler raised the price target to $206 from $200 and Compass Point raised its target price to $230 from $200.

Several other equity researches have also recently upgraded their stock outlook. Wells Fargo raised the target price to $220 from $205, Citigroup raised the target price to $227 from $223, JP Morgan raised it to $203 from $182. Barclays raised it to $220 from $209 and RBC raised it to $247 from $212.

We think it is good to buy at the current level and target at least $210 in the short-term and $250 in a best-case scenario as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Analyst comment

“Visa is on of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support high-single digit volume growth and low double-digit revenue growth in the near-to-medium term,” noted James Faucette, equity analyst at Morgan Stanley.

“The threat of disruption from new entrants is fairly low given Visa’s competitive cost structure and moat. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future,” he added.