Visa Shares, Where You Want to Be?

With the continued slump in financial stocks, some names have been cut down more than others, and the average investor who is looking to go long may face a conundrum: Stay on the sidelines or start buying?

One name that may pop up on radar screens that looks cheap on at least a few metrics is payments giant Visa Inc. The ride has been decidedly downward, with 15 percent lost through the past few months. At least some investors have been pounding (or, if a little more timid, patting) the table on the name, with one recent write-up by Seeking Alpha finding value in the continued twin engines of China’s growth and also consumer retail habits overall.

The investment recommendation theorizes that nothing fundamental has changed so that the author’s opinion would be swayed, with “bumper 2016” in the works.  The recent quote at roughly $68 should spark interest, with China a key and long-term catalyst, and that comes as the company is on the cusp of a formal bid to enter that market, which is as big as $7 trillion, bringing cards (and electronic payments) to the region. Yet one contingency is that the Chinese government has to release final recommendations that companies have to follow to gain access.

In the meantime, speaking fundamentally, Visa continues to have critical mass in payments, touching as much as $1.3 trillion in transactions, gaining ground from previous periods. China would be gravy here with every incremental point of market share being a huge upside to the top line, but there is competition in the offing through UnionPay, which is entrenched in that market already, and is the only bank card provider in the market, with more than 4 billion cards out in the field.

Of course there’s a boon that is more certain in the cards, no pun intended, with Visa set to gain control of Visa Europe, and with management noting on its call that it has jumped across two of three regulatory hoops, setting sights on closing the deal in the next few months. There’s enough growth in emerging markets, said the posting on Seeking Alpha, driven by growth in demographics, in the Philippines, India and Nigeria, among other areas even as the firm maintains its market leadership in card payments. 

Turning to investment metrics, multiples at a recent 24x trailing bottom line price to earnings ratio, may be too high at first glance, according to Seeking Alpha, but huge presence in the payments market deserves such a premium.