Visa stock (NYSE: V), the largest global electronic payment solutions company, gained a meager 5% – increasing from about $219 at the beginning of 2020 to around $230 currently, underperforming the S&P500, which grew 20% over the same period. However, the company’s payments volume has seen some recovery over the recent quarters – nominal domestic payments volume and nominal cross-border volume increased 18% and 10% y-o-y in Q3, respectively (FY Oct-Sept).
There were two clear reasons for the improvement in payments volume: First, easing of travel bans and Covid-19 restrictions in several countries, second, the U.S. government’s approval of the $1.9 trillion coronavirus relief package in March.
But we believe there is more upside to come over the coming months
Trefis estimates Visa’s valuation to be around $279 per share – about 24% above the current market price – based on one key opportunity and one risk factor.
The opportunity we see is Visa Revenues growth over the subsequent quarters. Visa generates around 95% of its total revenues from service, data processing, and international transactions revenue streams, which depend on payments volume, the number of processed transactions, and cross-border transaction volume. The company witnessed some drop in cross-border transaction volumes in 2020 due to the Covid-19 related restrictions. Further, it posted a lower growth rate in payments volume and processed transactions in the year. It resulted in a 5% y-o-y drop in net revenues ($21.8 billion). That said, the situation has improved over the last nine months with Visa reporting an 11% and 4% y-o-y growth in its domestic payments volume and cross-border payments volume. In addition, the number of processed transactions has also improved over the same period. It could be attributed to recovery in consumer spending levels, easing of lockdown restrictions – especially travel bans in Q3 and a…