Q4 Preview: Economic Downturn May Bode Well for Visa (V)

Visa, Inc. (NYSE: V) shares are trading slightly lower ahead of fourth-quarter results, expected out after the market closes Wednesday.

Earnings are expected to be $1.25 per share on revenue of $2.39 billion for Visa. The number would be a 1.6 percent gain from last quarter and last year, when Visa reported earnings of $1.23 per share. Visa generally beats expectations by about 2.5 percent, according to StreetInsider.com's Earnings History.

Shares gained about 2 percent through the third quarter and are up 5.6 percent higher since. The stock is up 29 percent during 2011. Visa has traded within a range of $66.50 to $94.75 over the last 52-week time frame.

Visa most recently had a book value of $37.72 per share, putting it's current price-to-book at 2.4x. Shares are going for about 15.8x next years earnings, compared with 15.7x for MasterCard (NYSE: MA), and 7.2x for Discover Financial (NYSE: DFS).

Data from Bloomberg has 31 analysts at Buy, six with a Hold, and none with a Sell rating on Visa. The analyst price target average is $103, with a low of $80 and high of $115.

Analyst Comments

• JPMorgan is modeling for earnings of $1.23 on revenue of $2.396 billion. The firm sees Visa with client incentives of 17.1 percent of gross revs. Operating expenses should grow 3 percent from last year, with operating margins up 60 percent.
  
  Constant currency purchase growth is expected to be about 13 percent, relatively flat from last quarter. The firm comments, "At this point, the only F4Q volume metrics we don’t know are processed transaction growth (JPM estimates 10 percent) and constant currency x-border volume growth (JPM sees 14 percent), which drive Data Processing and Int’l fees or 32 percent and 24 percent of gross revenues, respectively."
  
  
• Wells Fargo expects earnings of $1.20 on revenue of $2.408 billion. The firm sees U.S. credit card growth of 9.5 percent, down from 9.8 percent growth last quarter, with a particular focus on whether the consumer is contributing more.
  
  Debit volume expected to decelerate from 11 percent last quarter to 10 percent of growth this quarter. One key issue Wells Fargo points out is debit market share: "as MA indicated they signed another US issuer, and the ongoing discussions about PIN network agreements" linger.
  
  Wells Fargo said it would like to see a little more color surrounding PayPal.
  
  On International, the firm commented, "we are looking for total PV of $440 billion to be up roughly 24 percent. The largest region, APAC, should be up about 22 percent while CEMEA and LAC are expected to be up 39 percent and 32 percent, respectively. Cross border volumes should be the big focus here as they are highly profitable and a good barometer of the health of the economy."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Visa's past performance at Streetinsider's Visa Income Statement.

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