Visa: The Valuation Conundrum In A Frothy Market - Part Two

I wrote a piece back in July “Visa: The Valuation Conundrum In A Frothy Market” putting forth my belief that Visa Inc. (NYSE:V) did not possess the growth characteristics to justify its valuation and its appreciation was largely a function of its Visa Europe acquisition and the overall bull market. This bull market was rewarding stocks with sky-high valuations particularly in the technology sector which has recently fallen out of favor. The recent market wide sell-off in equities during the fourth quarter has erased all gains for the broader S&P 500 index and many individual stocks. Despite this market wide sell-off, Visa has delivered great returns in 2018, appreciating 23% and currently sits at $137 per share against a 52-week high of $151. Visa faces emerging threats in the digital payments space, blockchain technology and maturing markets in the traditional payments space leading to slower growth prospects. I’ve been reluctant to get behind the stock of Visa considering its valuation, slowing growth and trends away from the traditional credit card space among the younger demographics that embrace PayPal (PYPL) and PayPal’s Venmo for payment options and exchanging payments between multiple parties. There’s also Zelle that is now powering transfers to and from bank accounts, adding to the digital evolution in the payments space. Amazon (AMZN) may be disrupting the credit card transaction space with its potential launch of Amazon financial services and Amazon Pay. I feel that shareholders have become overly enthusiastic about Visa’s growth prospects. The stock has appreciated over 20% this year, boasts a P/E of over 30 and a PEG of over 1.7 in the midst of a frothy market that has only recently sold off. This scenario doesn’t provide a great benefit-reward profile at these levels in my opinion unless the market wide pull back brings Visa more in-line with its growth profile.

Visa Fiscal Q4 Earnings and Valuation Paradox

Visa reported its fiscal Q4 earnings that beat on EPS by $0.01 (EPS of $1.21) and missed on revenue estimates by $10 million (revenue of $5.43 billion) which grew by 11.7% year-over-year. Visa also provided guidance for its fiscal 2019, “annual net revenue growth: Low double-digits on a nominal basis, with approximately one percentage point of negative foreign currency impact.”

I feel Visa’s stock price is still misaligned with its overall revenue growth prospects with an unjustified P/E and PEG ratio that remains higher than the majority of large-cap growth stocks that have a greater growth profile. Visa’s management has forecasted continued revenue growth in the low double digits with EPS growth in the mid-teens, artificially high due to share buybacks. This forward-looking revenue growth rate is a shape divergence from the post-Europe Visa acquisition revenue growth numbers. Visa’s growth rate is slowing from these artificially high post Visa numbers thus misaligned with its growth profile. Continue reading "Visa: The Valuation Conundrum In A Frothy Market - Part Two"

Visa: The Valuation Conundrum In A Frothy Market

Visa Inc. (NYSE:V) continues to deliver phenomenal shareholder returns year after year, and thus far 2018 is no exception. Over the past year, Visa has appreciated 45% and currently sits at a 52-week high. Visa has become a top-performing perineal large-cap growth stock that continues to deliver despite emerging threats in the digital payments space, blockchain technology and maturing markets in the traditional payments space leading to slower growth prospects. I’ve been reluctant to get behind the stock of Visa considering its valuation, slowing growth and trends away from the traditional credit card space among the younger demographics that embrace PayPal (PYPL) and PayPal’s Venmo for payment options and exchanging payments between multiple parties.

Furthermore, Amazon (AMZN) may be disrupting the credit card transaction space with its potential launch of Amazon financial services and Amazon Pay. Despite Visa’s massive move over the past year, growth has become worrisome and touched down to single digits before bouncing back to double digits over the last two quarters. I feel that shareholders have become overly enthusiastic about Visa’s growth prospects. The stock has appreciated over 45% during the past year, boasts a P/E of over 35 and a PEG of over 2.0 in the midst of a frothy market. This scenario doesn’t provide a great benefit-reward profile at these levels in my opinion. Continue reading "Visa: The Valuation Conundrum In A Frothy Market"

Stress Test Success and Rising Interest Rates

For traders and investors, the political climate has been unlike anything we have ever seen in recent times!

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  • The Federal Reserve increased its short-term interest rate by a quarter of a percentage point and stated that economic growth has been “rising at a solid rate.”
  • The Federal Reserve indicated that two more rate hikes are likely in 2018 followed by three in 2019
  • A consortium of domestic banks passed the Federal Reserve’s stress test that was more rigorous than last year’s criteria
  • The banks are well capitalized and positioned to withstand severe economic conditions under high unemployment, housing depreciation, and credit defaults
  • Banks are in a position to release largess to shareholders via an increase in dividend payouts, share buybacks, and more unobstructed risk appropriate growth
  • Wells Fargo (WFC), Citigroup (C), Bank of America (BAC) and J.P. Morgan Chase (JPM) received approval for their capital return plans while Goldman Sachs (GS) and Morgan Stanley (MS) received conditional approval

Rising Interest Rates:

Back in March, the Federal Reserve expected the economy to continue to strengthen and inflation to rise shortly. The economic strength coupled with inflation telegraphed an environment that was ripe for more interest rate increases over the near term. This economic backdrop has gained momentum, and the Federal Reserve recently increased interest rates by a quarter percentage point and indicated that two more increases are highly likely in 2018 for a total of four this year. The consensus from the committee was perceived as very bullish on the domestic front and that the Federal Reserve will continue on its path of rising interest rates along with higher inflation expectations. In March, the committee stated that “tax changes enacted late last year and the recent federal budget agreement, taken together, were expected to provide a significant boost to output over the next few years” and more recently economic growth has been “rising at a solid rate,” unemployment has “declined” and household spending “has picked up.” The committee sees economic growth hitting 2.8 percent for the full year followed by 2.4 percent in 2019. The committee also indicated it continues to expect three more rate hikes in 2019. "The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with the sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2 percent objective over the medium term." Provided this backdrop of positive economic commentary, financials such as Goldman Sachs (GS), J.P. Morgan Chase (JPM), Citigroup (C) and Bank of America (BAC) are poised to benefit as a result. Continue reading "Stress Test Success and Rising Interest Rates"

Tariffs Inducing Market Headwinds and Risks

For traders and investors, the political climate has been unlike anything we have ever seen in recent times!

There are plenty of opportunities if you know where to look. I will help to bridge the gap between Washington and Wall Street, finding you the best stock plays being driven by politics.

  • Trump has been in a back and forth tariff battle with the Chinese for months and now has indicated that the EU may be subject to tariffs
  • This is creating a tit for tat trade war between the world’s two largest economies, the United States and China
  • As these trade war exchanges between the U.S. and China, in particular, unfold, world markets have experienced increased volatility
  • Multinational companies are starting to voice concern that these trade fears are becoming the most significant risk to their respective businesses
  • Multinationals just as 3M (MMM), DowDuPont (DWDP), United Technologies (UTX), General Electric (GE), Boeing (BA) and Caterpillar (CAT) have been under weakness as the tough trade rhetoric continues

Trade War Rhetoric Heats Up

Reports indicated that the Trump administration planned to block many Chinese companies from investing in domestic technology and block additional technology exports to China. It was reported that the administration was drafting rules that would apply to companies with at least 25% Chinese ownership from buying companies involved in "significant industrial technology." Despite these reports, Peter Navarro, a top trade advisor, said the market was overreacting to fears the administration would restrict foreign investment as part of its trade actions against China and other countries. "There are no plans to impose investment restrictions on any countries that are interfering in any way with our country. This is not the plan," he said. He insisted that markets were taking the wrong message from the reports, stating, "I would say more broadly I think today's market reaction is a very large overreaction," Navarro said. "What we have here with Trump trade policy is a tremendous success for this country and this market. It's very bullish." Going further, Treasury Secretary Steve Mnuchin stated that all of President Trump’s advisors were unanimous on the Chinese investment restrictions and that any mixed messages were unfortunate. Hence, part of the uncertainty that corporations and foreign governments are voicing concern. Continue reading "Tariffs Inducing Market Headwinds and Risks"

Visa - Heed Slowing Growth and Lofty Valuation

Noah Kiedrowski - INO.com Contributor - Biotech - Visa


Heed Slowing Growth

Visa Inc. (NYSE:V) shareholders have witnessed a meteoric rise in share price since the post-Visa Europe integration which provided a double-digit annualized one-time boost to revenue growth and thus was being used as an incorrect growth comparator. Additionally, since Donald Trump was elected president, the vast majority of stocks have seen significant gains, and Visa is no exception, moving from $78 per share in December of 2016 to $126 in January of 2018 or a 60% appreciation. Now that Visa Europe has been fully reflected in its numbers, the double-digit revenue growth ceases to exist, and its lofty valuation is unjustified. Visa’s management has now forecasted revenue growth in the high single-digits for the foreseeable future with EPS growth in the mid-teens, artificially high due to share buybacks. With revenue growth rates slowing to single digits coupled with the past year appreciation and the stock boasting a P/E in excess of 40, I feel that further appreciation is unjustified and entering a position at these heightened levels is not prudent. Furthermore, Visa faces a rapidly changing landscape in the payments and peer-to-peer space with the likes of Pay Pal (PYPL), Square (SQ), Amazon (AMZN) and an emerging platform for bank transfers with Zelle. Blockchain technology also continues to gain ground in a variety of industries, and I feel that it will inevitably enter into the credit card transactions space. Continue reading "Visa - Heed Slowing Growth and Lofty Valuation"