Is Visa Stock A Buy As Covid Trends Cut Into Visa's Cash-To-Credit Conversion Runway?

The Dow Jones stock dominates U.S. credit card networks by transactions and cards in circulation. It has ample room to grow in digital payments, while pursuing new bets in fintech and cryptocurrencies.

On July 7, Visa reported that consumers spent more than $1 billion worth of cryptocurrency globally on goods and services through their crypto-linked cards in the first half of 2021. Visa didn't share exact numbers for 2020 and 2019. But it estimated that crypto spending in the same period of last year and 2019 accounted for only a fraction of that amount.

As a result, on Dec. 8, Visa launched its Global Crypto Advisory Practice. This is an offering within Visa Consulting & Analytics "designed to help clients and partners advance their own cryptocurrency journey," Visa said in a statement.

Meanwhile, Visa, Mastercard (MA) and American Express (AXP) are struggling to crack emerging markets, while PayPal (PYPL) entered China's digital payments market with its GoPay purchase last year.

Both Mastercard stock and PayPal stock are on the IBD Long-Term Leaders list.

Visa Earnings And Fundamentals

Visa and Mastercard, with China's UnionPay, operate the world's biggest electronic payment networks. Mastercard and Visa process card transactions but don't issue credit cards.

Also, Visa and Mastercard have less exposure to interest-rate risk. Visa neither earns revenue from nor bears risk tied to the interest or fees paid by cardholders. Instead, Visa derives revenue from client services, data processing, cross-border transactions and value-added services, such as licensing fees. Its network spreads across more than 200 countries and regions.

On Oct. 26, Visa beat Q4 estimates, thanks in large part to a rebound in cross-border transactions. Visa reported earnings of $1.62 per share, a 45% jump from the year-ago quarter, on sales of $6.6 billion, a 29% increase. EPS was $5.91 for the year, while revenue rose 10% to $24.1 billion.

FactSet analysts had expected EPS of $1.55, a 44% year-over-year increase. Revenue was seen coming in at $6.52 billion, 28% higher than the year-ago quarter.

Payments volume grew 17% for the quarter and 16% for all of 2021. Cross-border volume surged 38% in Q4 and 9% for the year. Processed transactions increased 21% for the quarter and 17% for the full year.

Over the past three years, Visa averaged 4% EPS growth and 2% sales growth, according to the IBD Stock Checkup tool. On key earnings and sales metrics, Visa stock earns an EPS Rating of  89 out of 99, and an SMR Rating of A. The EPS rating reflects a company's health on fundamental earnings, and its SMR Rating measures sales growth, profit margins and return on equity.

On Nov. 17, online retail giant Amazon (AMZN) said it would stop accepting U.K.-issued Visa credit cards starting on Jan. 19, 2022, citing excessive transaction fees. Visa said it was disappointed in the decision and that it continues to negotiate with Amazon to find a solution prior to that date.

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