Entry Price: $232
Target Price: $290
Projected Yield: 25%
Time Line: 3 to 6 months
Position Size: 2.00%
Dividend Yield: 0.54%
Visa is a US based company owning and operating the largest electronic payment system. VISA International Service Association includes two independent members: Visa Inc. and Visa Europe Services Inc. The EU's Visa is owned by 3,000 local banks, while Visa Inc. accounts for online payments of various users, including government agencies, from over 200 countries.
What's the Idea?
The idea includes capitalizing on a stock that may rise with great financial performance, more online payments, and acquiring Tink ecommerce platform.
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Why Trade Visa?
Reason 1: More Electronic Transactions
Last year, the news for Visa was kind of mixed: on the one hand, the earnings were negatively affected with less overseas transfers because of the pandemic and closed borders; on the other, lockdowns made people use online payments more, which boosted electronic transactions and, subsequently, Visa's earnings.
The lockdown led to colossal ecommerce growth. Meanwhile, the business trend of going online will be here to stay in the nearest future, which means even more e-payments, especially in the emerging markets.
In 2021, the total size of transactions made through electronic payments should reach $6.70T, Statista reports, while by 2025 this figure is expected at as much as $10.50T, with an average annual growth of 12%. At the same time, Research and Markets reports that the total amount of electronic transactions might hit $11.29T by 2026, growing at 11.20% annually. This is very good news for Visa, as it has a significant market share in the payment market, being a major competitor of other similar companies. The current situation is very promising and may deliver great opportunities.
Reason 2: Tink Acquisition
Visa Inc. signed an acquisition deal wit Tink, an EU open banking platform for €1.80B, Reuters reports. Visa will fund the transaction with cash, and this will affect neither the previously announced share buyback nor the company's dividend policy.
In January, Visa and Plaid, a fintech company, withdrew their $5.30B merger agreement due to a legal action coming from the US government based on the anti monopoly law. As a result, Visa continued looking for promising companies in the fintech niche and eventually settled on Tink, Plaid's competitor.
Tink is actually a startup that provides open banking platform services similar to Plaid. In particular, it allows banks and other financial institutions to easily exchange users' transaction data, which may then be used for various purposes, from identifying fraudulent transactions to verifying user income to streamline credit underwriting process. Tink's ecosystem is used by over 3,400 financial institutions and over 250M customers in the EU.
In case the deal is a success, Visa will be able to add a profitable business to its portfolio, continue diversifying its earning channels outside of banking cards, and increase its free cash flow.
Reason 3: Financial Performance
Visa's earnings are growing: in the first three fiscal quarters of 2021, they rose by 4.70% to reach $17.50B. The operating margin remained virtually unchanged relative to Q1-Q3 2020, being stuck at 65.50%, while the net profit margin hit 49.70%. Visa has a huge stock of liquid funds on its balance sheet, the amount of which reached $19.20B, while the debt is at $21B, and the net debt / EBITDA ratio is 0.17x. There is no lack of liquidity: over the first three financial quarters, the free cash flow FCF) hit $10.76B.
Currently, the ratios for Visa are the following:
- EV/S: 20.70x
- EV/EBITDA: 30.40x
- Current P/E: 56.50x
- Forward P/E: 32.30x
In early 2021, Visa announced a new $8B share buyback program, $2.16B of which were actually brought into action in Q3 FY2021.
In July and August, many investment companies and banks set new price targets for Visa stock:
- Citigroup: $288
- Wells Fargo: $280
- Raymond James: $286
- Compass Point: $290
- Wedbush: $270
- Susquehanna Bancshares: $290
- Morgan Stanley: $282
- Truist Securities: $275
- Daiwa Capital Markets: $250
- JPMorgan Chase: $267
How to Use the Idea
- Buy the stock at $235.
- Allocate no more than 2% of your portfolio for purchase. To compile a balanced portfolio, you can use the recommendations of our analysts.
- Sell the stock when the price reaches $290.
How to Buy Visa?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type V.US (Visa ticker in the NYSE) in the search box, and select Visa in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type V.US (Visa ticker in the NYSE) and select Visa in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.