Visa Shares Plunge About 5% on Q4 Earnings Disappointment; Analysts Cut Target Price

Visa Inc, the world’s largest card payment company, reported a lower-than-expected profit in the fourth quarter as consumers cut spending given the income and job uncertainty due to the COVID-19-led economic recession, sending its shares down over 5% on Wednesday.

The global technology payment company, which has a presence in more than 200 countries, said its net income fell to $2.4 billion, or $1.07 per Class A share, down from $3.03 billion, or $1.34 per Class A share, same period a year ago. On an adjusted basis Visa reported earnings of $1.06 per share, also lower than the market expectations of $1.09 per share, according to Reuters

“Visa’s fiscal fourth-quarter results largely mirrored what we saw from peer Mastercard earlier in the day. While there are positive trends in parts of its business as quarantine efforts ease, the pandemic is still a significant weight on overall results, with continuing major declines in revenue and margins,” said Brett Horn, senior equity analyst at Morningstar.

“Visa finished the fiscal year roughly in line with our expectations, and we will maintain our $171 fair value estimate and wide moat rating,” Horn added.

On Wednesday, Mastercard said its net income plunged 28% to $1.5 billion or $1.51 per share in the third quarter. Excluding items, profit was $1.60 per share. That was lower than the market expectations of $1.66.

Net revenues of $5.1B, a decrease of 17% or nearly 11% with service revenues recognized on current quarter payments volume. Payments volume, cross-border volume and processed transactions growth all improved through the quarter and were at varying stages of recovery. Full-year business drivers were all impacted by COVID-19 starting in March, with an improving trend exiting September, the company said in the statement.

Visa shares ended 4.83% lower at $180.87 on Wednesday; the stock is down about 4% so far this year.

Executive Comments

“While our business drivers and financial results were impacted by COVID-19 in 2020, we’ve made significant progress in advancing our growth strategy. Visa drove the adoption of eCommerce and tap to pay to accelerate cash digitization, successfully unlocked new flows by expanding Visa Direct and B2B partnerships and facilitated client innovation through our value-added services,” said Alfred F. Kelly, Jr., Chairman and Chief Executive Officer.

“As the world turns increasingly to digital payments, we see tremendous opportunity for growth. We’ll remain thoughtful in our investments as we advance our strategy to enable the movement of money for everyone, everywhere.”

Visa Stock Price Forecast

Fifteen equity analysts forecast the average price in 12 months at $227.53 with a high forecast of $250.00 and a low forecast of $205.00. The average price target represents a 25.80% increase from the last price of $180.87. From those 15 analysts, 13 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $228 with a high of $272 under a bull-case scenario and $146 under the worst-case scenario. The firm currently has an “overweight” rating on the credit-card processor’s stock. Jefferies decreased their stock price forecast to $195 from $205; Raymond James cut the target price to $211 from $217; Credit Suisse slashed their stock price forecast to $230 from $235; Piper Sandler lowered their target price to $200 from $206.

Several other analysts have also recently commented on the stock. KeyCorp upped their price objective on Visa to $230 from $215 and gave the stock an “overweight” rating in Sept. Royal Bank of Canada restated a “buy” rating and set a $243 price objective.

Analyst Comments

“Visa is on of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support low double-digit revenue growth in the near-to-medium term,” said James Faucette, equity analyst at Morgan Stanley.

“While COVID-19 headwinds are likely to persist, we see upside opportunity from the faster-than-expected recovery of travel. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future,” Faucette added.

Upside and Downside Risks

Upside: 1) Ability to continue to meet/beat expectations. 2) Portfolio wins in Europe, with most of their contracts renegotiated. 3) Faster-than-expected adoption/scaling of B2B solutions, driving multiple expansion– highlighted by Morgan Stanley.

Downside: 1) Material slowdown in consumer spend; Further slowdown in cross-border growth. 2) Portfolio losses in the US. 3) Regulatory changes in key markets promoting domestic schemes.

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