Visa: Slowing Growth Rate, We May Need More

seekingalpha2021-08-06

Summary Visa has been superb at delivering value and growth for investors and customers for the past decade and more, with more and more of our everyday financial transactions moving digital. However...

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精彩评论

Klyy
2021-08-06
Klyy
Please like! Thank you
SandDust
2021-08-06
SandDust
I foresee the future world without credit card, debit card but full digital payment. So how Visa maintain relevant if the digital payment company also provide you credit facility
- BrOoKe:
  Great
moonlightbae
2021-08-06
moonlightbae
mans speaking straight fax
Kelzz
2021-08-06
Kelzz
[微笑]
junior_daddy
2021-08-06
junior_daddy
Pls like
- Slee49:
  Like
Cynderella
2021-08-06
Cynderella
☘️☘️

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Even as they don't pay a high dividend yield, the transition from debit and account balance style of financing over to digital and credit (or simply debt) has been a major boon for the company's top and bottom lines. As a result, and together with a sizable multi-billion dollar share repurchasing program, delivered a CAGR return of over 27.5% over the past decade.\nNow, as expected, this debit-to-debt transition rate is slowing as most of the developed world has already shifted to paperless, contactless and debit-less financial situations and this is seen by analyst forecasts slowing growth rates from 27% to 15% over the next 5 years. Although I do believe that the company is likely to beat these expectations by a handsome margin, it's still slightly concerning for the longer-run return prospects.\nAlthough we can have the dividend vs buyback debate all day every day, I think that there should be some consideration to a dividend hike as they currently only pay a 0.5% annual dividend yield which does not entice investors given the slowing growth rate for the longer run.\nAccumulating Growth & Returning Value\nVisa has seen one of the steadiest share price appreciation environments in the entire stocks market and it has done so on behalf of the transition from debit to credit in almost all of the elements in our lives. We use credit for our day-to-day lives as well as buying vehicles, housing, eating out and all of those high-growth segments which are seeing huge jumps as our priorities shift as a nation. The levels of debt that the average American and global consumer is taking on is concerning on a societal level, but as it's not expected to change any time soon, the company is set to benefit from this steady stream of income with sky-high margins due to almost insignificant upkeep expenses.\nAnother positive factor is the company's use of share repurchasing to increase their value per share. Over the past decade, the company has bought back roughly $8 billion worth of its own stock every year and has a new authorization which gives it the ability to buy back as much as $11 billion of its own stock in 2021 alone. So far, they've repurchased almost $4 billion of their stock in 2021 and are expected to accelerate this repurchasing as the year progresses as they've stepped it down during the post-pandemic months. The company used the pandemic sell-off to purchase almost $5 billion worth of stock in the first several months of 2020.\nEven so, this is only a roughly 2.2% reduction in shares outstanding annually. There surely is a large percentage of investors who would likely prefer the company provide a higher dividend yield, which could create better value. Since the company has such a sky-high gross margin, which is only expected to increase as they integrate third-party services and see higher overall credit spending, they can certainly sustain a higher dividend yield and maintain some amount of share repurchases.\nThere's One More Thing\nOne thing that is slightly concerning to me is the company's debt position. They've held off from taking on any long-term debt for decades but in recent years has accumulated just under $20 billion in long-term debt. As a result, they've been paying over $530 million annually in interest expense. The danger here is that we're in a rising rate environment and although other parts of their business will gain from this, there's the potential for them to see as much as $1 billion annually disappear from their balance sheets if they continue to hold some of this debt for the next few years.\nThe positive spin on this is that the company does currently hold their highest ever cash position with just over $18 billion in cash and equivalents as well as another $1.2 billion in short-term investments. Moreover, although they've been investing less money and returning less interest income, they have been retiring the high-yield debt ahead of schedule and as a result, interest expense has been on the decline. It's unclear what the company's priorities will be moving forward but I do expect more of this to continue. They do have the potential to pay back most of the non-fixed-rate debt if they can't find a higher ROI (return on investment) to use the cash.\nSlowing Growth Rate: Why We're All Here\nThe reason I talk about the demand for a higher yield as well as various debt and cash positions is because, naturally, sales and income growth rates are expected to slow after decades of accelerating growth due to the debit-to-debt transition.\nThe company has shown a CAGR of over 27.5% over the past 10 years and now analysts expect the company to report a, still high, but slowing rate. For the next 5 years,they currently expect a CAGR of 13.9% to EPS, significantly less than the past 5 years. Here are the figures for 2020 through 2025:\n(Source: Analyst projections,Seeking Alpha)\n\n\n\n\n\nEven as the company has beaten expectations for most of the past decade quarterly reporting, it's unclear if this will continue as analysts project that the company's margins will improve significantly over the next few years, as evident by sales growth expectations. This doesn't make much sense to me as more competitive pressures and third-party services like cashback, advertising revenue sharing services and more will start eating at the company's sky-high margins over the next several years.\nFor sales, analysts currently expect Visa to report a sales CAGR of 10.3% throughout the same timeframe as I mentioned earlier for EPS projections. This means that the company will increase margins as they expect EPS to grow at a higher, near 14% growth rate over the same period.\n(Source: Analyst projections,Seeking Alpha)\n\n\n\n\n\nI continue to believe that the company may beat sales expectations as we see stronger transition figures but I do not believe we'll be seeing much EPS beats if they continue to guide for margin expansion. The transitions within these industries away from high-interest products to still-high-but-lower interest products are almost certain to put a small but significant damper on margin growth.\nInvestment Conclusion\nVisa has a bright future ahead and with the roughly 15% expected EPS growth rate and the additional 2.2% buyback rate, it is nearly certain to beat the overall market return rate, which has historically been just over 10%. Even so, the company growth rate is inevitably slowing, and with rising competitive pressure and third party services expenses, I believe there needs to be more to entice long term yield investors who may not be all that optimistic about the company's ability to continue and beat the market without being paid to wait.\nThe company has more than enough cash to increase its dividend yield to over 2% while continuing the same level of share repurchasing. Investing that cash has been good for the company but has not brought even close to the same level of return that hiking dividend or increasing buyback will do.\nI remain bullish on the company's long-term prospects but am waiting to see some more of a focus on shareholder value before adding to a position.","kind":null,"is_publish_news":false,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":893023744,"gmtCreate":1628222543988,"gmtModify":1633752447035,"author":{"id":"3582550643152901","authorId":"3582550643152901","name":"Klyy","avatar":"https://static.tigerbbs.com/33ea9606913f634a1d83024cbc093cc7","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3582550643152901","authorIdStr":"3582550643152901"},"htmlText":"Please like! Thank you","listText":"Please like! Thank you","text":"Please like! Thank you","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/893023744","repostId":1186157835,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":893092657,"gmtCreate":1628219141479,"gmtModify":1631886289496,"author":{"id":"3581331938298103","authorId":"3581331938298103","name":"SandDust","avatar":"https://static.tigerbbs.com/ea6083d742fc232449a625fb122842c8","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3581331938298103","authorIdStr":"3581331938298103"},"htmlText":"I foresee the future world without credit card, debit card but full digital payment. So how Visa maintain relevant if the digital payment company also provide you credit facility&nbsp;","listText":"I foresee the future world without credit card, debit card but full digital payment. So how Visa maintain relevant if the digital payment company also provide you credit facility&nbsp;","text":"I foresee the future world without credit card, debit card but full digital payment. So how Visa maintain relevant if the digital payment company also provide you credit facility","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/893092657","repostId":1186157835,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5443106,"gmtCreate":1628220039852,"gmtModify":1635158754472,"authorId":4089018853439370,"author":{"id":4089018853439370,"idStr":"4089018853439370","authorId":4089018853439370,"name":"BrOoKe","avatar":"https://static.tigerbbs.com/a8081ab75c39abcb57e6136431300155","vip":1,"crmLevel":7,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":893092657,"type":1,"supId":0,"prevId":0,"content":"Great","text":"Great","html":"Great"}],"langContent":"EN"},{"id":899774936,"gmtCreate":1628218030725,"gmtModify":1633752492002,"author":{"id":"3575016656391852","authorId":"3575016656391852","name":"moonlightbae","avatar":"https://static.tigerbbs.com/9e8bead30ce122327046cb50ca725a77","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3575016656391852","authorIdStr":"3575016656391852"},"htmlText":"mans speaking straight fax","listText":"mans speaking straight fax","text":"mans speaking straight fax","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/899774936","repostId":1186157835,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899752968,"gmtCreate":1628216855054,"gmtModify":1633752506376,"author":{"id":"3569232528431910","authorId":"3569232528431910","name":"Kelzz","avatar":"https://static.tigerbbs.com/ae9c1aa2f12f5072e158a0f61fabb3e4","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3569232528431910","authorIdStr":"3569232528431910"},"htmlText":"[微笑]&nbsp;","listText":"[微笑]&nbsp;","text":"[微笑]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/899752968","repostId":1186157835,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":899758744,"gmtCreate":1628216803588,"gmtModify":1633752507270,"author":{"id":"3574927270640767","authorId":"3574927270640767","name":"junior_daddy","avatar":"https://static.tigerbbs.com/15d3e810c8746da472a70549c212570d","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3574927270640767","authorIdStr":"3574927270640767"},"htmlText":"Pls like&nbsp;","listText":"Pls like&nbsp;","text":"Pls like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/899758744","repostId":1186157835,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5442638,"gmtCreate":1628216866033,"gmtModify":1635158792340,"authorId":3581993357014262,"author":{"id":3581993357014262,"idStr":"3581993357014262","authorId":3581993357014262,"name":"Slee49","avatar":"https://static.tigerbbs.com/a4a9c556617a3ec3446f5c1c667b4aa0","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899758744,"type":1,"supId":0,"prevId":0,"content":"<u>Like</u>","text":"<u>Like</u>","html":"<u>Like</u>"}],"langContent":"EN"},{"id":899753118,"gmtCreate":1628216700034,"gmtModify":1633752509394,"author":{"id":"3580811689622706","authorId":"3580811689622706","name":"Cynderella","avatar":"https://static.tigerbbs.com/97dc932d1229cc66333c4946fed9fc7c","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3580811689622706","authorIdStr":"3580811689622706"},"htmlText":"☘️☘️","listText":"☘️☘️","text":"☘️☘️","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/899753118","repostId":1186157835,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":57,"commentSize":10,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1186157835"}