Visa (NYSE: V) stock has returned almost nothing for the year, compared to the S&P500’s 12% rise over the same period. In particular, Visa’s competitor Mastercard (NYSE: MA) has risen 5% for the year. Overall, at its current price of $260 per share, it is trading 15% below its fair value of $305 – Trefis’ estimate for Rating of Visa.

Against the current financial backdrop, V stock has seen strong gains of 20% from $215 in early January 2021 to around $260 now, while the S&P 500 has seen a gain of about 40% over that roughly 3-year period. However, V stock’s rise has been far from consistent. The stock’s returns were 0% in 2021, -3% in 2022, and 26% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that V lagged behind the S&P in 2021. In fact consistently beats the S&P 500 – for better or for worse – has been difficult for individual stocks in recent years; for other heavyweights in the financial sector, including JPM, MA and BAC, and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride as shown by the HQ portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could Visa find itself in a similar situation as in 2021 and perform worse than the S&P in the next 12 months – or will there be a sharp jump?

The company reported mixed results in the third quarter of fiscal 2024 (fiscal Oct-Sept). Earnings beat expectations, but revenues fell short. It reported net revenue (revenue less customer rewards) of $8.9 billion – up 10% year-on-year, driven by 8% growth in services revenue, followed by a 9% increase in data processing and a similar increase in international transaction revenue. As for key metrics, payment volumes increased 7% year-on-year, along with a 10% improvement in the number of transactions processed and a 12% increase in cross-border transactions. On the cost side, total operating expenses were reduced by 4% year-on-year in the quarter. Overall, net income increased 17% year-on-year to $4.87 billion.

Revenue increased 9% year-on-year to $26.3 billion in the first nine months of fiscal 2024, driven by a 12% increase in data processing revenue, followed by a 9% increase in international transactions and services revenue. In addition, operating expenses as a percentage of revenue were reduced during the same period, resulting in a 15% increase in net income to $14.43 billion.

We expect sales in the fourth quarter to be similar. Overall Visa’s earnings are expected to reach $35.83 billion in fiscal 2024. In addition, Visa is expected to report adjusted net income of $20.1 billion in the year. Combined with annual GAAP EPS of $9.88 and a P/E ratio of just under 31, this results in a valuation of $305.

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