Is Visa a Worthwhile Investment?

With shares of Visa (NYSE:V) trading around $192, is V an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Visa is a global payments technology company that connects consumers, businesses, banks, and governments across the globe to fast, secure, and reliable electronic payments. The company derives revenues primarily from the fees paid by its clients based on payments volume, transactions that it processes, and other related services. The method consumers and companies use for transactions is constantly improving, which has undoubtedly led to explosive growth in this area. As consumers and businesses continue to adopt efficient transaction systems, Visa stands to see rising profits.

Last Wednesday, Visa reported earnings that beat analyst estimates, as consumers around the world used its payment systems at increased rates. Also, the company has raised its expectations for full-year revenue and earnings. Visa showed strong growth in the United States, its biggest market, with customers in the United States spending $683 billion using Visa cards in the quarter. That growth helped stem fears about the European Commission’s plans to start limiting fees on card payments.

T = Technicals on the Stock Chart are Strong

Visa stock has seen a consistent rise in the last several years. The stock is now trading near all-time high prices, and does not see any significant signs of slowing just yet. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Visa is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

V

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Visa options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Visa Options

20.31%

6%

5%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts, and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Visa’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can help gauge investor sentiment on Visa’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Visa look like, and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

20.51%

0.52%

29.53%

95.36%

Revenue Growth (Y-O-Y)

17.00%

14.74%

11.74%

14.60%

Earnings Reaction

4.20%

5.64%

-2.33%

3.68%

Visa has seen increasing earnings and revenue figures over the last four quarters. From these numbers, it seems the markets have been pleased with Visa’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Visa stock done relative to its peers, MasterCard (NYSE:MA), American Express (NYSE:AXP), Discover (NYSE:DFS), and sector?

Visa

MasterCard

American Express

Discover

Sector

Year-to-Date Return

27.19%

22.54%

31.25%

30.14%

26.05%

In a strong sector, Visa has been an average performer, year-to-date.

Conclusion

Visa strives to help consumers, companies, governments, and other entities by providing methods of easy transaction worldwide. The company recently reported earnings that made investors happy, and the stock is now trading near all-time high prices, with still more room to rise. Over the last four quarters, earnings and revenue figures have been increasing, which has pleased investors in the company. Relative to its strong peers and sector, Visa has been an average year-to-date performer. Look for Visa to continue to OUTPERFORM.

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