Visa shares on growth path with record credit card debt

V

visa

$268.04

+1.57 (+0.59%)

(As of August 20, 2024 ET)

52-week range

$227.78

▼

$290.96

Dividend yield

0.78%

P/E

29,95

Target price

$308.50

Global payment technology company visa NYSE: V The stock is up 2.7% year-to-date, lagging the S&P 500 index’s 16.62% rise. The Federal Reserve Bank of New York reported a $27 billion increase in credit card debt to a record $1.14 trillion. Credit bureau TransUnion reported a 4.7% year-over-year increase in the average credit card balance per consumer to $6,329. Given the record levels of credit card debt, investors would think that the stock of the world’s second-largest payment processor, Visa, should be doing much better than it is.

Visa operates in Business Services Sector and competes with Mastercard Inc. NYSE: MA, : Discovery Financial Services Inc. (ISIN: DE000A0Q42) is a registered trademark of Discovery Financial Services NYSE: DFSAnd American Express Co. NYSE: AXP.

Visa does not issue credit cards

There is a misconception that Visa issues credit cards. That is not the case. Visa is a network that facilitates electronic funds transfers (EFTs) between consumers, merchants and financial institutions. Visa is an intermediary that enables security and convenient digital payments. It is an asset-light company whose core function is to process payments and transactions made with Visa-branded credit, debit and prepaid cards through the Visa network. Visa generates revenue through service and transaction fees charged to merchants and financial institutions. This is similar to PayPal Holding Inc. NASDAQ: PYPL, which is both a competitor and a partner of Visa.

Is record credit card debt good for Visa?

Visa charges fees for transactions such as purchases made with a Visa card. Interest charged on the credit card balance is collected by the issuing financial institution. In other words, Visa does not make money on balances or the interest charged on them. So record-high credit card debt does not necessarily mean Visa is profiting. Retail spending has a more direct impact on Visa, as it collects transaction fees from merchants.

Is Visa affected by high interest rates, credit card balances or chargebacks?

High interest rates increase existing credit card debt and contribute to record levels. Therefore, credit card debt increases even if the consumer does not make purchases with the Visa card. Low consumption due to inflation and high interest rates is actually bad for Visa. On the other hand, Visa is not directly hurt by credit card defaults, delinquencies and write-offs. However, Visa is indirectly hit when consumers experience financial difficulties, resulting in lower transaction volumes as spending is curtailed.

Visa stock is in a descending channel pattern

The daily candlestick chart for Visa showed a descending price channel consisting of lower highs and lower lows. The descending upper trendline connects the highs while the parallel descending lower trendline connects the lows. The channel starts after reaching its all-time high of $290.96 on March 21, 2024. The daily relative strength index (RSI) is attempting to jump through the 56 band. Pullback support levels are at $262.35, $256.88, $245.50, and $240.97.

Restraint in discretionary spending is becoming increasingly clear

Visa reported third-quarter 2024 earnings per share of $2.42, in line with consensus estimates. Revenue increased 9.6% year-over-year to $8.9 billion, below consensus estimates of $8.92 billion. Total transactions processed increased 10% year-over-year.

Payment volume increased 7% year-over-year, suggesting a slowdown. Travel-related volume growth slowed as cross-volume growth slowed to 13% from 14%. Credit and debit card payment volume slowed to 7% from 8% in the same period last year. During the conference call, it was noted that U.S. payment volume through July 21, 2024, was only up 4% year-over-year. The slowdown was attributed to weather, timing of promotional shopping events, and technology outages.

Visa reaffirms forecasts for Q4 2024

Visa expects revenue growth in the low double-digit range, operating expenses growth in the high single-digit range and diluted earnings per share growth in the high end of the low double-digit range for the fourth quarter of 2024.

VISA CEO Ryan McInerney concluded: “…we continue to see strong growth in client demand for our consulting and marketing services, particularly during major events such as the Olympic and Paralympic Games. Our portfolio of value-added services is strong and is driving significant growth for our clients and for Visa.”

Visa analyst ratings and price targets are at MarketBeat. There are 27 analyst ratings for V stock, including one Strong Buy, 20 Buys and six Holds. Analyst price targets suggest 15% upside potential at $307.25. The stock also pays an annual dividend yield of 0.78%.

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