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Can High Network & Processing Costs Spoil Visa (V) Q3 Earnings?

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Visa Inc. (V - Free Report) is set to report fiscal third-quarter 2022 financial results on Jul 26, after the closing bell.

In the last reported quarter, the payments technology company’s adjusted earnings per share of $1.79 beat the Zacks Consensus Estimate by 8.5%, primarily due to strong growth in payments volume, processed transactions and cross-border volume, which was partly offset by elevated operating costs.

Let’s see how things have shaped up prior to the fiscal third-quarter 2022 earnings announcement.

Trend in Estimate Revision

The Zacks Consensus Estimate for fiscal third-quarter 2022 earnings per share of $1.74 has witnessed two upward revisions and no downward movements in the past week. The estimate is indicative of a 16.8% increase from the year-ago reported figure. Similarly, the Zacks Consensus Estimate for revenues is pegged at $7 billion, suggesting a 14.8% jump from the year-ago reported figure.

Visa beat earnings estimates in each of the trailing four quarters, delivering an average of 8.4%. This is depicted in the graph below.

Visa Inc. Price and EPS Surprise

Visa Inc. Price and EPS Surprise

Visa Inc. price-eps-surprise | Visa Inc. Quote

Factors to Note

Consumers and merchants adapted to digital payments in the face of the pandemic, given the ease, convenience and security offered by it. These trends are expected to have continued in fiscal third-quarter 2022. Consumer spending is expected to have witnessed a massive improvement in the June quarter amid the pent-up demand, higher personal savings, and travel and entertainment spending.

The Zacks Consensus Estimate for total volume — which consists of cash volume and payments volume (the primary lever of service revenues) — is pegged at $3,630 billion, indicating an increase from $3,373 billion in the year-ago period.

As the company draws revenues as a set percentage of total transaction value every time a customer makes payments with a debit/credit card, higher spending means more revenues in the form of transaction processing fees. The consensus mark for total payments transactions indicates a 10.4% year-over-year increase.

Also, the consensus mark signals an 11% year-over-year increase in data processing revenues. With the growth in payments volume and processed transactions, Visa’s operating efficiency is expected to have improved in fiscal third-quarter 2022. This is expected to have positioned the company for year-over-year bottom-line growth.

However, the Zacks Consensus Estimate for network and processing expenses indicates an 11.8% year-over-year increase. This might have partially offset the positive impact of higher volumes, making an earnings beat uncertain.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Visa this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.

Earnings ESP: The company’s Earnings ESP is -0.92%. The Most Accurate Estimate currently stands at $1.72 per share, lower than the Zacks Consensus Estimate of $1.74.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Visa currently carries a Zacks Rank #3.

Stocks to Consider

While an earnings beat looks uncertain for Visa, here are some companies from the broader Business Services space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

FirstCashHoldings, Inc (FCFS - Free Report) has an Earnings ESP of +2.15% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for FirstCash’s bottom line for the to-be-reported quarter indicates a 31% year-over-year increase. FCFS beat earnings estimates in each of the past four quarters, with an average of 20.3%.

WEX Inc. (WEX - Free Report) has an Earnings ESP of +1.03% and is a Zacks #2 Ranked player.

The Zacks Consensus Estimate for WEX’s bottom line for the to-be-reported quarter implies a 47.6% improvement from the year-ago figure. WEX beat earnings estimates in each of the past four quarters, with an average of 8.6%.

Nuvei Corporation (NVEI - Free Report) has an Earnings ESP of +0.73% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for Nuvei’s bottom line for the to-be-reported quarter is pegged at 46 cents per share. The consensus mark for NVEI’s top line is pegged at $220.6 million.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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