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Visa (V) Well Poised to Beat on Q4 Earnings: Here's Why?
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Visa Inc. (V - Free Report) is set to report fiscal fourth-quarter 2016 results on Oct 24, 2016 after market close. Last quarter, the company had posted a positive earnings surprise of 2.99%. Let’s see how things are shaping up for this announcement
Why a Likely Positive Surprise?
Our proven model shows that Visa is likely to beat on earnings as it has the right combination of the two key components. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or #2 (Buy) or at least #3 (Hold) to have a significantly higher chance of beating estimates.
Zacks ESP: The Earnings ESP for Visa is +1.37%. This is because the Most Accurate estimate of 74 cents per share is a penny above the Zacks Consensus Estimate.
Zacks Rank: Visa’s Zacks Rank #3 increases the predictive power of ESP. The combination of Visa’s positive ESP and favorable Zacks Rank makes us fairly confident of an earnings beat this quarter.
Stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Factors Driving a Likely Earnings Beat
U. S. credit card volume during the fiscal fourth quarter was likely driven by the positive impact of Costco where Visa credit cards are being accepted since June.
Also deals renewed with TD in the United States and Canada, Regions Bank, Chevron, Homeplus in South Korea, Taichung Bank in Taiwan, and Mandiri Bank in Indonesia will also lead to an increase in the volume of card usage.
Neverthless, a higher tax rate of approximately 30% compared with 29.3% in fiscal 2015 will be a headwind to earnings. Foreign exchange is also expected to present a 4% headwind to adjusted earnings per share.
Moreover, the bottom line will likely suffer from expenses related to the Visa Europe integration. Management earlier indicated that the company will likely take a restructuring charge to align its cost structure following the Visa Europe acquisition which was completed in June.
Higher incentives will also drain earnings to some extent. Incentives as a percentage of gross revenues was 19% in fiscal third quarter and the company guided that it will increase further in fiscal fourth quarter as Costco incentives kick in. This will bring full-year client incentives as a percent of gross revenues to around 18.5%, which is at the high end of the 17.5% to 18.5% previously guided.
Nevertheless, the company’s continued commitment to return excess capital to shareholders by way of share buyback will also add to its bottom line.
MarketAxess Holdings, Inc. (MKTX - Free Report) with an Earnings ESP of +1.30% and a Zacks Rank #3. The company is slated to report third-quarter earnings on Oct 26.
Ally Financial Inc. (ALLY - Free Report) has an Earnings ESP of +1.69% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Oct 26.
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Visa (V) Well Poised to Beat on Q4 Earnings: Here's Why?
Visa Inc. (V - Free Report) is set to report fiscal fourth-quarter 2016 results on Oct 24, 2016 after market close. Last quarter, the company had posted a positive earnings surprise of 2.99%. Let’s see how things are shaping up for this announcement
Why a Likely Positive Surprise?
Our proven model shows that Visa is likely to beat on earnings as it has the right combination of the two key components. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or #2 (Buy) or at least #3 (Hold) to have a significantly higher chance of beating estimates.
Zacks ESP: The Earnings ESP for Visa is +1.37%. This is because the Most Accurate estimate of 74 cents per share is a penny above the Zacks Consensus Estimate.
Zacks Rank: Visa’s Zacks Rank #3 increases the predictive power of ESP. The combination of Visa’s positive ESP and favorable Zacks Rank makes us fairly confident of an earnings beat this quarter.
Stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Factors Driving a Likely Earnings Beat
U. S. credit card volume during the fiscal fourth quarter was likely driven by the positive impact of Costco where Visa credit cards are being accepted since June.
Also deals renewed with TD in the United States and Canada, Regions Bank, Chevron, Homeplus in South Korea, Taichung Bank in Taiwan, and Mandiri Bank in Indonesia will also lead to an increase in the volume of card usage.
Neverthless, a higher tax rate of approximately 30% compared with 29.3% in fiscal 2015 will be a headwind to earnings. Foreign exchange is also expected to present a 4% headwind to adjusted earnings per share.
Moreover, the bottom line will likely suffer from expenses related to the Visa Europe integration. Management earlier indicated that the company will likely take a restructuring charge to align its cost structure following the Visa Europe acquisition which was completed in June.
Higher incentives will also drain earnings to some extent. Incentives as a percentage of gross revenues was 19% in fiscal third quarter and the company guided that it will increase further in fiscal fourth quarter as Costco incentives kick in. This will bring full-year client incentives as a percent of gross revenues to around 18.5%, which is at the high end of the 17.5% to 18.5% previously guided.
Nevertheless, the company’s continued commitment to return excess capital to shareholders by way of share buyback will also add to its bottom line.
VISA INC-A Price and EPS Surprise
VISA INC-A Price and EPS Surprise | VISA INC-A Quote
Stocks to Consider
Here are some companies that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:
MasterCard Incorporated (MA - Free Report) is slated to report third-quarter earnings on Oct 26. The company has an Earnings ESP of +1.02% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
MarketAxess Holdings, Inc. (MKTX - Free Report) with an Earnings ESP of +1.30% and a Zacks Rank #3. The company is slated to report third-quarter earnings on Oct 26.
Ally Financial Inc. (ALLY - Free Report) has an Earnings ESP of +1.69% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Oct 26.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>