Visa (NYSE: V) could be the perfect stock for the coronavirus age. Interestingly, coronavirus creates new uses for Visa’s products: payment services.
For example, four million Americans could receive their coronavirus stimulus payments as Visa debit cards. However, many people could throw those cards out because the US Treasury failed to advertise the cards, Vox Recode claims.
The stimulus cards are just one opportunity Coronavirus creates for Visa. In particular, many American businesses are refusing to accept cash or discouraging the use of cash out of fear of COVID-19.
I think those policies will force many Americans to replace cash with cards. That could benefit Visa, the biggest payment card provider. Visa’s platform supported 345 million credit cards in the United States, and 797 million credit cards outside the USA in 4th Quarter 2020, Statista estimates.
Visa Owns the World’s Largest Payment Processing Network
In total, Visa claims to support 3.3 billion payment cards in over 200 countries worldwide. In addition, Visa claims its platform serves over 46 million merchant locations and over 15,900 financial institutions worldwide.*
Impressively, Visa claims its network could process over 65,000 transactions per second (TPS). Additionally, Visa claims its network processed over $11 trillion in cash in June 2018. Finally, Visa claims it can process payments in over 160 currencies.*
If these claims are true, Visa is the world’s electronic payment processor. Hence, Visa (NYSE: V) owns the infrastructure the world needs now.
Beyond cards, use of contactless mobile payment solutions such as Apple Pay and Google Pay is booming. For instance, retailers such as Target (NYSE: TGT), Walgreens (NASDAQ: WBA), and Family Dollar are accepting mobile payments to limit coronavirus contamination.
Impressively, the number of Australians using Apple Pay and Google Pay grew from 7.1% in 2019 to 10.8% in May 2020, The Roy Morgan Digital Payments estimates. Hence, both wireless digital payments (mobile) and traditional electronic payments (cards) are growing.
How Much Money is Visa Making?
Visa Inc. (NYSE: V); however, is making less money in 2020. For example, Visa’s quarterly revenues fell from $6.054 billion on 31 December 2019 to $5.854 billion on 31 March 2020.
Moreover, Visa’s quarterly gross profit fell from $6.054 billion to $5.84 billion in the period. Hence, one reason I like Visa is that its gross profits and revenues are the same. Thus, Visa’s revenues reflect its profits.
Additionally, Visa’s operating income fell from $4.016 billion to $3.924 billion in the first three months of 2020. In addition, Visa’s common net income fell from $3.272 billion to $3.084 billion in the same period.
Plus, Visa’s revenue growth rate fell from 9.95% in the last quarter of 2019 to 6.55% in the first quarter of 2020. Hence, Visa’s revenues are growing even though it makes less money.
Visa Generates Less Cash
Notably, Visa’s operating cash flow fell from $3.875 billion on 31 December 2019 to $1.467 billion on 31 March 2020.
Oddly, Visa’s ending flow dropped from $12.263 billion to $553 million in the same period. Hence, Visa’s business can generate enormous amounts of cash, but its cash-flow fluctuates dramatically.
Importantly, Visa is increasing its investment in its business. Visa’s cash from investment grew from $562 million on 31 December 2019 to $1.467 billion on 31 March 2020.
Ultimately, Visa is a cash-rich company. Visa had $13.415 billion in cash and short-term investments on 31 March 2020. That number was down from $14.304 billion on 31 December 2019.
In the final analysis, I consider Visa a cash-rich company with enormous amounts of value.
Is Visa overvalued?
I think Mr. Market valued Visa (NYSE: V) fairly at $196.36 on 2 June 2020. Moreover, Visa’s share price is stable.
For instance, Visa shares started 2020 at $191.12 on 2 January 2020 and rose to $195.24 on 29 May 2020 to $196.36 on 2 June 2020. However, Visa fell to a $135.74 share price on 23 March 2020.
Visa is a stock that retains its value. I think the stable share price, the growth, and the cash gives Visa a high margin of safety. Thus, I consider a Visa widows and orphans stock.
To explain, a widows and orphans stock is a moneymaking equity safe enough for people who need steady income to own. I think Visa fits into that category because of its cash and high rate of growth.
Is Visa a Good Dividend Stock?
Visa (NYSE: V) paid a 30₵ quarterly dividend on 13 May 2020. That dividend grew by 5₵ in 2019 rising from 25₵ on 15 July 2020 to 30₵ on 22 October 2019.
Overall, each Visa share offered a dividend yield of 0.62%, an annual dividend of $1.20, and a payout ratio of 23.88% on 2 June 2020. I think those numbers make Visa an outstanding dividend stock. Impressively, Dividend.com credits Visa with 11 years of dividend growth.
If you want a stable cash rich company with high growth potential, that pays a dividend. I think Visa is an excellent choice. If you want to grow with the digital universe, you need Visa in your portfolio.
*Source Visa Fact Sheet: https://usa.visa.com/dam/VCOM/download/corporate/media/visanet-technology/aboutvisafactsheet.pdf
Originally published at https://marketmadhouse.com on June 2, 2020.