Visa, Inc. Investment Thesis

Visa, Inc. (V)

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Visa is the largest provider of electronic payment processing services, with a 58% global market share compared to the 26% market share of its closest competitor, MasterCard. Visa is accepted by 44 million merchants worldwide and has over 3.1 billion cards in circulation, twice that of MasterCard. The Visa network processed $8.2 trillion worth of transactions in the twelve months ended September 30, 2017, more than MasterCard, American Express, and Discover combined. Over 16,800 financial institutions are part of Visa’s worldwide network, the biggest in the industry.
Visa's growth has been propelled by increased consumer spending as the global economy has recovered and by the increasing use of digital payments over cash transactions. Still, more than 85% of the world’s retail transactions are conducted with cash or checks, leaving significant upside for all electronic processors to grow. For consumers, the transition from cash to plastic brings numerous benefits including convenience, safety, and increasingly attractive rewards programs.
In June 2016, Visa completed its acquisition of affiliate Visa Europe for EUR18.3 billion. The combination provides scale advantages, cost savings, and revenue opportunities to Visa, as the company will now capture 100% of Visa Europe’s growing cross-border volumes, fees, and profits. The acquisition is expected to be accretive to Visa’s earnings this upcoming year. Visa is also eyeing expansion in China, where the state bank clearing system was recently opened to Visa and MasterCard to launch card-processing networks as early as 2018.
We consider Visa’s financial position to be sound, with high operating margins, strong free cash flow, and modest debt. Management is shareholder- friendly and returned $8.5 billion to investors during 2017 in the form of stock buybacks and dividends. Visa stock trades at a premium to the market at 27.9 times estimated 2018 earnings, but we believe that premium is justified by the company’s dominant market position, strong brand equity, and significant growth prospects driven by Visa Europe.