Is Visa Stock a Buy Going into Earnings?

Visa is a powerhouse in the payments technology industry, dominating its closest competitor Mastercard MA, with more than 50% greater payments volume

Is Visa Stock a Buy Going into Earnings?

Visa (V - Free Report) , the global payments processing company, reports Q1 FY23 earnings on Thursday January 26 after the market closes.Since its IPO in 2008, Visa has been a tremendous stock returning 1,500%. Even during a challenging 2022 Visa managed to stay positive, up 8.5% over the last 12 months, well above the S&P's return of -11%.Quick OverviewVisa is a powerhouse in the payments technology industry, dominating its closest competitor Mastercard (MA - Free Report) , with more than 50% greater payments volume. V has also grown its revenue consistently over the years including 10% in fiscal 2021 and 22% in 2022.Along with many other multinationals, Visa has been affected negatively by the Russia, Ukraine conflict.

After building a significant presence in Russia it has completely withdrawn. Business in Russia accounted for 4% of Visa's revenue.CompetitionVisa's primary competitor is Mastercard MA, as well as American Express (AXP - Free Report) , and Discover Financial Services (DFS - Free Report) .Mastercard has very similar offerings as Visa. Neither are involved in extending credit or issuing cards, and only do so through co-branded relationships.

AXP and DFS are different in that way as they offer credit options.Mastercard, like Visa, is a tremendous business, and MA has outperformed V over the long-term. Since 2008 Visa has returned 1,480%, while Mastercard has returned 1,840%. Although over the last 12 months, V has edged a small outperformance of 9% vs.

6%Image source: Zacks Investment ResearchEarnings ExpectationsZacks estimates that Visa's Q1 FY23 sales will rise 8.8% to $7.7billion. Zacks analysts expect strong earnings expectations, with 10.5% growth to $2.00/share in the next quarter. The next quarter and year estimates have seen small revisions, dropping to $9.50 per share from $9.77 per shares 90 days earlier.

DFS had a solid earnings report, beating estimates on both the top and bottom line for the quarter.DFS also announced that it is revamping its share repurchase plan, as well as paying a new semi-annual cash dividend on preferred shares. Over the last quarter DFS repurchased about 5.9 million shares worth $602 million, which reduced the share count by 2.1%.It wasn't all good news for Discover Financial. FY22 adjusted earnings per share of $15.05 declined 13% YoY, and net earnings plunged 19% to $4.4 billion.Operating Metrics One Visa metric I will be looking at closely is total volume.

Total volume is the sum of total payments and cash volume. Aggregate figures like total volume can break down large, complicated businesses into a single figure. Of course, it isn't completely explanatory, but provides useful insights in a simple medium.The figure is also useful for gauging the economy broadly.

As the world's leading payment processor, Visas figures provide valuable information on individuals economic activities.Total volume has missed estimates over the past three reported quarters, and four of the last five. Something I find concerning is that the magnitude of the misses continues to grow as well. Looking a little closer at the data we can see last quarter, total volume missed by -3.6%, but the brunt of the loss came from Europe, which missed estimates by -14.5%.Europe is the second largest contributor to Visa's top line, so these results have significant impact.

Additionally, it offers insights into European economic behavior, which would appear to be slowing. Interestingly, the rest of the geographies all missed by less than the total number.Image Source: Zacks Investment ResearchImage Source: Zacks Investment ResearchEarnings BeatsVisa almost always beats earnings estimates. Going back to 2008, the closest they have gotten to a miss was two reports that reported exactly in line with estimates.But with earnings revisions coming in flat, and the economy slowing, maybe now we see a miss.

The probability of a miss, is admittedly very low, but if it were to happen it would be significant for Visa and speak to the state of the economy.Zacks figures think Visa will beat. Using Zacks ESP (Earnings Surprise Prediction) we can expect Visa to beat earnings by 0.6%.Image Source: Zacks Investment ResearchValuationFor Visa's entire history as a public company, it's one year forward P/E ratio has remained above the S&P's average. Considering Visa's exceptional business model, and consistent growth this makes sense.With a one year forward P/E ratio of 25.5x, Visa is currently above its 15-year median of 24x.Image Source: Zacks Investment ResearchVisa sits comfortably holding a very large cash position of $15.7 billion, and regularly building it with its strong free cash flow.

Additionally, Visa's net debt is 4.3% of its net capital, which is significantly lower than the industry average of 17%.Visa has also demonstrated its commitment to shareholder value by increasing is dividend payment every year since 2009, which currently yields 0.8%.ConclusionVisa is a great company, with a rock-solid business model, and very long runway considering the size and scope of the digital payments landscape. It excelled during the very challenging 2022 period, continues to prioritize shareholders, and grow both the top and bottom line.The real risk for Visa is the underlying strength of the economy. For now, the economy expects a soft landing, or mild recession.

But if those expectations are wrong, the sales and earnings forecasts of V and many other companies will need to readjust. That being said, even in the worst-case people will be using Visa's payments technology.