On Monday, Jefferies updated its outlook on Visa Inc . (NYSE:V) shares, raising the price target to $320 from $310 while maintaining a Buy rating on the stock. The adjustment reflects expectations of revenue growth driven by foreign exchange (FX) volatility and service revenue yields, which are anticipated to counterbalance higher incentives.
The firm anticipates a slight third-quarter revenue beat due to these factors. Specifically, international transaction fees are projected to grow by 11% year-over-year, which is approximately 150 basis points above consensus estimates. This growth is expected despite the Chicago Board Options Exchange Volatility Index (CVIX) remaining relatively flat year-over-year in the third quarter compared to a 16% decrease in the second quarter.
Jefferies also forecasts a potential shortfall in client incentives, as the market expects a quarter-over-quarter decline as a percentage of gross revenues, which contradicts the average quarter-over-quarter increase observed since FY19. Looking ahead, the initial revenue guide for fiscal year 2025 is predicted to show low-double-digit growth, with higher FX volatility potentially balancing out increased incentives and comparisons to Olympic year revenues.
The analysis suggests that Visa could maintain a roughly 10% year-over-year FX-neutral growth rate, which Jefferies models at 9.5% for both reported and FX-neutral figures. However, the firm also notes potential risks, including the possibility that incentive growth may not align with fiscal year 2024 levels and concerns that low-double-digit growth expectations might be perceived as overly optimistic.
Finally, Jefferies estimates that the various factors influencing Visa's fiscal year 2025 growth, such as higher FX volatility, the impact of Citizens, slower incentives growth, and decelerating cross-border volume, will result in a net positive impact of over 100 basis points. This is largely due to the anticipated 15% year-over-year increase in FX volatility, which should offset the expected slowdown in payment volume growth to 7% year-over-year.
In other recent news, Visa Inc. has been making strategic financial moves, including the adjustment of conversion rates for its class B common stock, a result of a $1.5 billion deposit into the U.S. litigation escrow account.
Concurrently, Visa has announced the creation of the Visa Tokenized Asset Platform (VTAP), a product focused on enabling financial institutions to issue fiat-backed tokens on blockchain networks, and the Visa Commercial Solutions Hub, aimed at streamlining business payment management. The company also plans to acquire artificial intelligence firm Featurespace, a step expected to enhance its fraud prevention capabilities.
Despite an ongoing Department of Justice lawsuit, financial services firms such as BMO Capital have maintained positive ratings on Visa's stock. In terms of financial performance, Visa reported a 7% increase in payment volume and an adjusted earnings per share of $2.42 for the third fiscal quarter of 2024. These are recent developments in the company's business activities and financial performance.
InvestingPro Insights
Complementing Jefferies' positive outlook on Visa Inc. (NYSE:V), recent data from InvestingPro provides additional context to the company's financial performance and market position. As of the last twelve months ending Q3 2024, Visa reported a robust revenue of $34.92 billion, with a healthy revenue growth of 9.7%. This aligns with Jefferies' projection of sustained growth, albeit potentially at a more moderate pace in the coming fiscal year.
Visa's strong market position is further underscored by its impressive operating income margin of 66.95% for the same period, reflecting the company's operational efficiency. This high profitability is consistent with Visa's status as a prominent player in the Financial Services industry, as noted in one of the InvestingPro Tips.
Another InvestingPro Tip highlights Visa's commitment to shareholder returns, having raised its dividend for 16 consecutive years. This is particularly noteworthy given the company's current dividend yield of 0.75% and a substantial dividend growth of 15.56% over the last twelve months. These figures suggest that Visa continues to prioritize returning value to shareholders while maintaining a strong financial position.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 9 more tips available for Visa on the InvestingPro platform, providing a deeper dive into the company's financial health and market prospects.
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