Our Analysis of Visa Inc. (NYSE: V)

Now that we have completed our "Quantamental" analysis of the "Magnificent Seven," we are going to begin looking at some other widely owned stocks. Especially ones that are in the news.

As a reminder, our "Quantamental" approach combines "quantitative" analysis, which consists mainly of technical analysis, with "fundamental" analysis of the company's operating metrics.

We have developed and refined this approach over thirty years as professional investors. We have simplified our approach to three simple analyses that we think can cover 90% of the analysis of any individual stock.

This week we are going to look at payments giant Visa Inc. (NYSE: V).

The company was founded in 1958 by Bank of America to compete with competitor Master Charge (now Master Card—Mastercard Incorporated (NYSE: MA)). In 1966, Bank of America opened it up to other financial institutions and turned it into a cooperative in 1970.

The company went public in March 2008, right as the Global Financial Crisis was picking up steam. Since then, it has been a tremendous stock.

Recently, it has been in the news that the Department of Justice may be challenging Visa's dominance of the debit card market.

Our analysis below is not a formal recommendation on the stock. Based on our analysis, we are giving our views of what is most likely to happen from here.

Here is the analysis…

1. Technical Analysis

As mentioned above, Visa has been a great stock over the years.

Here is the chart over the last decade…

Over the last ten years, it has gone from a low of roughly $40 per share to a recent high of almost $300 just a few weeks ago—a seven-fold return in the stock price. Impressive!

The share price has also held well over this period, with consistent returns. It was down roughly with the S&P 500 during COVID-19 and the 2022 BEAR market but has more than doubled the market's return over the period. That is a great "alpha" from the stock.

Clearly, the stock market has been rewarding Visa and believes strongly in the story. That degree of outperformance and consistent share price performance are rare.

With the recent news about the DOJ investigation, the stock has sold off some. Here is the recent stock price and RSI chart…

The stock has been a strong performer since the end of 2022, up almost +50%. It is continuing to see good shareholder support.

This sell-off has pushed it down to the lower end of the recent trading range. Looking at the RSI chart, it looks like an attractive area.

One concern is that the stock price has struggled more here in 2024. It has been quite oversold for an extended period. Eventually, though, it rallied strongly, which speaks to RSI's power as a contrarian signal.

From a technical perspective, this is an impressive stock over the long term. With the sell-off, we think this could be a good place to start an initial position.

TECHNICAL ANALYSIS = BUY.

2. Earnings Revisions

Our readers know that we think the strongest driver of near-term stock price performance is whether companies beat numbers and see positive earnings revisions.

We refer to them as “earnings” revisions, but they can also be revenue revisions. We usually look at not only the most popular measure—earnings per share (EPS)—but also other measures, such as Earnings Before Interest, Depreciation, and Amortization (EBITDA).

Like most large companies, V's EPS revisions are most important, and here is the chart of those estimates…

We find it interesting that V's earnings revisions look very similar to those of the technology stocks in the "Magnificent Seven." Payments were caught with the same post-COVID hangover as all technology.

Similarly, they bottomed out in late 2022, leading to a stock recovery.

Another thing to note is that the move in the EPS estimates is relatively tiny. While they moved up and down, the total move was only $0.50 or roughly 5%.

We think this low volatility of earnings has contributed to the strength of the stock.

Earnings revisions have turned higher in the recent 18 months, and the company has a good history of beating quarterly analysts’ expectations.

Here is that table…

The company has beaten almost every quarter except for one in 2020 and this most recent quarter. Even when it has missed, it has missed by $0.01 or less.

Again, the path of earnings for V exhibits very low volatility.

This reminds us of what we saw in our analysis of Apple Inc. (NASDAQ: AAPL) last week. These two companies have very low earnings volatility relative to their large capitalization peers. This lower volatility has likely contributed to their success as stocks.

Looking at V's recent earnings path and historical track record of outperformance, we think it is likely to continue to execute in the future, which will support the share price.

On this basis, we think the stock is a buy.

EARNINGS REVISIONS = BUY

3. Earnings Growth

The final measure we focus on is the actual growth in earnings.

Given earnings' low volatility, V's track record of earnings growth over the last ten years is impressive.

Here is the table of their EPS growth over the last decade…

While they had one down year during 2020, they have grown EPS every other year at least to the mid-teens pace. This period has also seen them grow EPS fivefold.

Given the scale of the business, we are impressed with this type of earnings growth. The company has clearly executed.

This brings us to the discussion about the DOJ investigation into their debit card business.

We have seen similar investigations in companies that have achieved great success. In our experience, the company will be subject to a fine most of the time, but it doesn't alter the trajectory of long-term earnings.

Visa's EPS growth from $2 to $10 was not solely due to its debit card business but also to a diversified growth strategy.

Any remedies in that business also do not mean the business goes away. Instead, it may take a step back in earnings for a year and slow some of its growth. In our experience, the stock will digest these changes.

We want to reiterate our view stated last week - stocks are NOT companies.

As we discussed, stocks can be viewed as "products," and V stock is a product that combines market leadership, scale, low volatility, and high growth.

We do not think the DOJ investigation will alter that trajectory, and we do not see any clear evidence that anything else will.

If they continue their operational execution track record from the past, we think they will continue to grow, and the stock will go higher.

EARNINGS GROWTH – BUY

Conclusion

Visa has been a tremendous stock over the last fifteen years. This is due to its excellent track record of earnings growth with low volatility.

This has propelled the stock to more than half a trillion in market capitalization.

Our experience is that companies with this track record and scale will continue to succeed.

With the recent stock sell-off caused by the DOJ, this could be a good entry point for a long-term winner.