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Riding on steady growth momentum, the shares of Visa Inc. (V - Analyst Report) reached its all-time high at $205.13 on Dec 2. The global payment processor’s shares rose about 33% since the beginning of 2013.

The improved momentum of this Zacks Rank #3 (Hold) stock is driven by improved core fundamentals coupled with expense control. Visa delivered positive earnings surprise in all of the last 4 quarters with an average beat of 4.5%.

Yesterday’s closing price represents a strong one-year return of about 37% and a year-to-date return of about 35.3%. On both these grounds, the company outperformed the S&P 500 index of 27.2% and 26.3%, respectively during the same period. Average volume of shares traded over the last three months stands at approximately 3010.9K.

Earnings Review

On Oct 30, Visa reported fiscal fourth-quarter 2013 operating earnings per share of $1.85, in line with the Zacks Consensus Estimate. The results however, outpaced the prior-year quarter figure of $1.54 per share.

Results reflected about 9% growth in total revenue against mere 1% increase in total expenses. Higher processed transactions, driven by improved card spending, and cross border volumes shored up the margins and capital returns.

Rationale

Overall, Visa fared well in fiscal full-year 2013, despite the regulatory uncertainties and higher-than-expected litigation charges. With nil long-term debt and surplus cash and investments position, the company enjoys a strong capital position. A diversified business portfolio and effective marketing efforts also raise optimism for strong operating leverage in the long term.

Furthermore, an efficient capital deployment, reflected by Visa’s incremental share buybacks and the latest 21.2% hike in dividends, will continue to instil investors’ confidence in the stock.

Valuation

Further, valuation looks compelling for Visa stock. The shares are trading at 2% premium to the peer group average on a forward price-to-earnings basis and 62% premium on a price-to-book basis. While return on equity of 18.1% is at par with the peer group average, return on assets of 13.8% stands well above the peer group average of 7.2%. Even estimated long-term earnings growth is pegged at 17.5%, higher than the peer group average of 12.9%.

Meanwhile, some better-ranked financial stocks include Xoom Corp. (XOOM - Snapshot Report), Global Payments Inc. (GPN - Snapshot Report) and Higher One Holdings Inc. (ONE - Snapshot Report). All these stocks sport a Zacks Rank #2 (Buy).

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