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On Jun 10, we reiterated our Neutral recommendation on Visa Inc. (V - Analyst Report) based on its steady growth momentum, partially offset by higher expenses and intense market competition. The company’s long-term growth is pegged at 17.4%, higher than the peer group average of 12.8%.

Why the Retention?

Estimates for Visa have been experiencing a steady rising trend since the global payment processor announced its fiscal second-quarter 2013 results on May 1. The company’s earnings per share (EPS) and operating revenues of $1.92 and $2.96 billion exceeded the Zacks Consensus Estimate of $1.81 and $2.85 billion, respectively. Both the top- and bottom line also outperformed the year-ago numbers.

Results reflected better pricing and higher spending that drove the number of processed transactions along with higher cross-border volumes. However, escalated operating expenses and cash outflow partly mitigated growth. Nevertheless, a debt-free balance sheet and raised earnings outlook for fiscal 2013 inject confidence for efficient capital deployment in the future.

Following the release of the fiscal second-quarter results, the Zacks Consensus Estimate for 2013 edged up 1.8% to $7.47 per share in the last 60 days. Moreover, the Zacks Consensus Estimate for 2014 grew 2% to $8.67 a share. Further, Visa witnessed about 21 positive estimate revisions during the last 60 days, while no downward revision was experienced. With the Zacks Consensus Estimate for both 2013 and 2014 exhibiting slight upward pressure on the stock in the near term, the company now has a Zacks Rank #2 (Buy).

While intense global competition coupled with sluggish interest rate environment and currency fluctuations deter the desired upside in the stock, Visa’s growth is sustained by its consistent credit quality and focus on a diversified business mix and technology upgrades. Strong alliances and acquisitions also bode well for long-term growth.

Other Financial Stocks That Warrant a Look

While we maintain a neutral stance on Visa in the near term, other stocks in the financial sector that are outperforming include Investment Technology Group Inc. (ITG - Snapshot Report), XL Group Plc (XL - Analyst Report) and Fleetcor Tech Inc. (FLT - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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