Why Visa Earnings Are Not Impressing Investors

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Visa Inc. (NYSE: V) reported fiscal third-quarter 2018 results after markets closed Wednesday. The credit card issuer posted adjusted diluted earnings per share (EPS) of $1.20 and revenues of $5.24 billion. In the third quarter of 2017, Visa reported adjusted EPS of $0.86 on revenues of  $4.57 billion. Consensus estimates called for EPS of $1.09 and $5.09 billion in revenue.

On a GAAP basis, Visa’s EPS totaled $1.00 per share, which includes a $600 million provision for litigation to resolve a clash over its merchant fees.

During the quarter the company repurchased some 13.6 million shares of common stock at an average price of $128.80 per share for a total of $1.8 billion. Visa noted that the $600 litigation provision has the same economic effect on EPS as repurchasing class A common stock.

CEO Alfred F. Kelly Jr. said:

Our third quarter results reflect continued strength across all of our key business drivers and healthy economic fundamentals across the world. During the quarter, we made notable progress against our key strategic initiatives, particularly new Visa Direct and B2B partnerships. This progress furthers our confidence in the long-term investments we are making to drive profitable, sustainable growth in the rapidly changing payments environment.

In the company’s outlook for the 2018 fiscal year, Visa reaffirmed annual net revenue growth in the low double-digits on a nominal basis and a positive currency exchange impact of approximately 1%. The company expects its annual operating margin to be in the high 60% range on an adjusted basis and diluted EPS growth in the high 50% range and at the low end of the 20% range on an adjusted basis. Full-year 2017 adjusted EPS totaled $3.48.

Analysts are looking for fiscal fourth-quarter revenues of $5.46 billion and adjusted EPS of $1.21. For the full year, the consensus estimates call for revenues of $20.49 billion and adjusted EPS of $4.50.

Payment volume rose 11% year over year and profits rose 13% to $2.33 billion. Net operating revenue rose 15%. Visa expects to spend about $60 million in the current fiscal year to complete the integration of Visa Europe. The company purchased Visa Europe in 2016 for about $23 billion.

Visa’s stock traded down about 0.5% in Thursday’s premarket to $142.00, after closing at $142.64 on Wednesday. The 52-week range is $98.51 to $142.77, and the high was posted yesterday. The 12-month consensus analyst price target was $150.71 before last night’s report.