MA don’t infringe a patent owned by Asymmetric Inc. , a company that had sought as much as $13. 4 billion for alleged use of its technology in “smart” debit and credit cards. Visa Improves Payment Card Fraud Detection Technology: Visa (V) unveiled a series of improvements to its payment fraud detection system that boosts the ability of its network to detect potential electronic payments fraud. Visa says this potentially reduces fraud by billions per year, while more confidently approving legitimate transactions to remove friction from payments for merchants and consumers alike. Investment Summary
We projected Visa’s twelve months target price to be $208. 04, $19. 14 than stock prices today. Visa’s high PEE ratio of 23. 59 suggests its stock is overpriced, but we think they will still be relatively overpriced a year from now. We think there will be strong 12 month growth, so we still recommend buying this stock. We did several valuations methods, which are covered in the Valuation section of this document. We believed all of the numbers except the perpetual growth model represented potential 12 month price rates. We took an average of all except the perpetual growth price to determine a target price of $208. . Compared to the current price, Visa would have a 10% stock growth rate for next 12 months. This is lower than the last 12 month growth, but we believe this price would account for their high revenue and growth rate and take into consideration their overpriced stock compared to competitors. Based on the definition of strong buy being a stock expecting to return 15% or more in a year, Visa was placed in the buy, rather than strong buy, category. Versus the industry is 26% higher than other credit services stocks. The PEE ratio for Visa is higher than Mastered which means Visa has been a little bit overpriced.
However, the higher PEE ratio also means Visa is expected to grow revenue and earnings much more quickly in the future than the company have lower PEE ratio. Higher price today is commanding for the higher future earnings. We believe they will still be overpriced in a year, so we believe our projected target price is realistic. In 2008, according to The Nilsson Report, Visa held a 38. 3% market share of the credit card marketplace and 60. 7% of the debit card marketplace in the United States. In 2009, Visa’s global network processed 62 billion transactions with a total volume of $4. 4 trillion.
In 2013, Visa has a network of more than 28 million merchants, and 2 million Tams in 200 countries and territories. Mastered features more than 30 million merchants, but people rarely come across merchants that take one and not the other. On the other hand, Visa posted the biggest fall in two years, plunging about 6%. The reason: A federal court Judge ruled that the Federal Reserve had no authority to set the limits on debit card fees. At the same time, the problem is the government regulation. Companies like Visa face substantial regulations -? the “Risk Factors” in Visa’s 10-K run several pages long.
For the most part, the limits on fees from Dodd- Frank have had adverse impact on the company’s business. Finally, Visa has still been a big winner for the past year, posting returns of about 38% since last July. In fact, the stock has averaged that 38% gain for the past three years. However, the stocks valuation is far from cheap, with the price-to-earnings ratio at 23. 59. Then again, this is to be expected given the company’s strong competitive advantages and reliable growth. But if Visa misses on earnings -? which could happen because of new regulations or pressures from rivals -? the stock could e vulnerable.
With all factors in consideration, we recommend to buy Visa. Events affecting stock prices Business Description Visa has been at the forefront of electronic payments since its inception in 1979 when Beneficiary became Visa. From the first revolving credit card platform to neural networks and mobile payments, Visa has pioneered the growth and development of this fast-moving industry. Visa’s payment platforms are increasingly the backbone of global commerce, enabling the swift and secure transfer of value and information among financial institutions, individuals, businesses and government entities.
Visa is a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories, enabling them to use electronic payments instead of cash and checks (Our Business). Visa has built one of the world’s most advanced processing networks, which is capable of handling more than 20,000 transactions per second. Visitant’s key attributes include reliability, convenience and security; also including fraud protection for consumers and guaranteed payment for companies (Our Business). However, Visa does not issue cards, extend credit, or set rates and fees for nonusers.
Visa’s innovations enable its bank customers to offer consumers the choice to pay now with debit, pay ahead of time with prepaid, or pay later with credit products (Our Business). Visa owns, manages, and promotes a portfolio of well- known, widely accepted payment brands which include Visa, Visa Electron, PLUS and Interlink. They license these to client for use in their payment programs (Annual Report). Visa is giving more people in more places access to electronic payments and is the world’s largest retail electronic payments network with $6. 7 trillion transacted in the United States.
From the world’s major cities to remote areas without banks, people are increasingly relying on electronic payments along with mobile technology to use their money any time, make purchases online, transfer funds across borders and access basic financial services (Our Business). To continually succeed, Visa invests in new services and processing platforms to facilitate more convenient payment methods like mobile payments, money transfers, and commerce. They continually try to improve speed, efficiency, security, and performance for their network and payment services to protect the security of Industry Overview and Competitive Positioning
Industry Overview The credit card industry, like most others, was hit hard by the recession due to high unemployment and increasing default. This trend has started to correct itself, and the increasing use of credit versus cash and more online transactions will bring more profit to this industry (Fishbowls, 2013). Electronic payments reduce economic inefficiencies, make payments more secure and convenient, and drive further economic and social development. Electronic payments can provide opportunity in developing countries to rebalanced their economies by promoting consumption.
According to Global insight, increasing the resent of electronic payments by 10 percent will correspond to a . 5 percent increase in consumer spending. Financial development increases economic growth by directing capital to an economy’s most productive areas (Schmitt, 2008). Market penetration is growing at a rate exceeding country and global growth. The rate of growth has been higher in transitional countries (such as Eastern Europe and much of Asia) due to recent openings of the financial markets in said countries.
Electronic retail transactions are expected to continue growing, creating opportunity for expanded revenue for credit card companies. The highest growth in dollar terms is expected to come from Brazil, Mexico, Italy, and UK/learned (as depicted by chart). Factors influencing growth include economic growth, infrastructure, consumer education, transparency, and regulation (Schmitt, 2008). The image to the right represents the market share of Visa, Mastered, Ames, and Discover in both the consumer and commercial credit card market.
Visa dominates in the consumer sector. In the commercial sector, there is more equal distribution with Visa still with the largest share, followed closely by Ames (The Nilsson Report, 2013). Competitive Positioning Below is a table summarizing Visa and four of its main competitors: Mastered Inc. , Discover Financial Services, American Express Company, and Capital One Financial Corp.. The comparatives used show profit and revenue, growth, dividend performance, and several other key factors necessary in determining investment profitability.
