Visa (NYSE: V) is scheduled to report its fiscal Q2 2021 results after the market closes on Tuesday, April 27. We expect Visa to beat the consensus estimates for revenues and earnings. Visa, the world’s largest electronic payment solutions company, has outperformed the consensus estimates in each of the last three quarters. However, its top and bottom line have suffered on a year-on-year basis. Over recent quarters, the company’s revenues were hurt by lower cross-border volumes and a decline in the growth rate of payments volume & processed transactions. We expect the same trend to drive the second quarter FY2021 results, too (Note: Visa reports results on a fiscal year ending September 30).
Our forecast indicates that Visa’s valuation is $242 per share, above the current market price of ~$230. Look at our interactive dashboard analysis on Visa’s pre-earnings for additional details.
1) Revenues expected to beat the consensus estimates in Q2:
Trefis estimates Visa’s fiscal Q2 2021 revenues to be around $5.87 billion – 6% above the $5.55 billion consensus estimate. Visa reported total revenues of $21.8 billion in 2020 – down 5% y-o-y. It was mainly due to a 19% y-o-y drop in the international transaction revenue, driven by lower cross-border volumes stemming from Covid-19-related travel restrictions. Further, services and data processing revenues, which grew with a CAGR of 13% and 18% respectively over 2016-2019, managed a growth figure of just 1% and 6% respectively in 2020. This trend can be attributed to lower consumer spending levels. The same trend was visible in the first quarter FY2021 results, and we expect it to govern the second-quarter results.
While travel restrictions related to Covid-19 are still in place, as more people are vaccinated, travel bans are likely to be lifted in the subsequent quarters – benefiting international transaction revenues. Further, consumer spending levels have seen some improvement over recent quarters should continue to recover as economic conditions improve. Overall, it will likely enable Visa’s revenues to touch $23.3 billion in FY2021.
2) EPS likely to edge past the consensus estimates:
Visa’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.30 per Trefis analysis, slightly above the consensus estimate of $1.27.
In 2020, the drop in revenues translated into lower profitability figures – adjusted net income decreased 10% y-o-y to $10.9 billion. It was mainly due to increased operating expenses as a % of revenues – from 34.7% to 35.5%, driven by higher selling, general and administrative costs. This reduced the EPS figure from $5.32 to $4.89. We expect to see a similar trend in the FY2021 Q2 results too.
Moving forward, the net income margin is unlikely to see a significant change in FY2021. However, the adjusted net income figure is likely to see some growth driven by higher revenues. This will enable the company to report an EPS of $5.23 for the current fiscal year.
3) Stock price estimate 5% more than the current market price:
Going by Visa’s valuation, with an EPS estimate of around $5.23 and a P/E multiple of just below 46x in fiscal 2021, this translates into a price of $242, which is 5% above the current market price of around $230.
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