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Will Visa (V) Q3 Earnings Suffer on Macro Economic Woes?
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Visa Inc. (V - Free Report) is set to report fiscal third-quarter 2016 results on Apr 21, after the market closes. Last quarter, the company posted a positive earnings surprise of 1.47%. Let’s see how things are shaping up for this announcement.
Factors at Play in Q3
The fiscal third quarter will see the adverse impact of a strengthening U.S. dollar, which is most likely to affect cross-border business volume. Also, a slump in oil price and economic slowdown in emerging markets and China might pull down Visa’s business growth.
Cross-border commerce outbound from China dropped from growth rates above 40% a year ago to single-digit levels in the second quarter. Commodity-based economies across Latin America, the Middle East and Africa also experienced sharp declines in payment volumes. This hit hard the company’s large U.S. cross-border acquiring business. The same trend is expected in the fiscal third quarter.
Management expects fiscal third-quarter net revenue growth in nominal terms to be as low as 2% to 3%.
Interest expense related to $16 billion in long-term debt raised last December for the Visa Europe transaction will lead to higher interest expense, which will affect the company’s bottom line.
With a lower revenue growth range and including interest expense from $16 billion in debt, the company expects constant currency earnings per share growth in low double digits.
Higher incentives and rebates will also drain the bottom line.
Nevertheless, new initiatives undertaken by the company to boost demand for electronic and mobile payment facilities are likely to have a favorable impact in the to-be-reported quarter. Service and transaction processing revenues are likely to have been strong.
In addition, Visa’s earnings may have got a boost from increased card usage owing to an expanding customer base and continued growth in electronic payments.
Earnings Whispers
Our proven model does not conclusively show that Visa is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Visa’s Earnings ESP is -1.49%. This is because both the Most Accurate estimate is pegged at 66 cents per share, a penny below the Zacks Consensus Estimate.
Zacks Rank: Visa carries a Zacks Rank #2 (Buy). Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes our surprise prediction difficult.
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:
Moody’s Corp. (MCO - Free Report) has an Earnings ESP of +8.07% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 22.
American Express Co. (AXP - Free Report) has an Earnings ESP of +1.04% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 20.
Global Payments Inc. (GPN - Free Report) has an Earnings ESP of +1.47% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 28.
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Will Visa (V) Q3 Earnings Suffer on Macro Economic Woes?
Visa Inc. (V - Free Report) is set to report fiscal third-quarter 2016 results on Apr 21, after the market closes. Last quarter, the company posted a positive earnings surprise of 1.47%. Let’s see how things are shaping up for this announcement.
Factors at Play in Q3
The fiscal third quarter will see the adverse impact of a strengthening U.S. dollar, which is most likely to affect cross-border business volume. Also, a slump in oil price and economic slowdown in emerging markets and China might pull down Visa’s business growth.
Cross-border commerce outbound from China dropped from growth rates above 40% a year ago to single-digit levels in the second quarter. Commodity-based economies across Latin America, the Middle East and Africa also experienced sharp declines in payment volumes. This hit hard the company’s large U.S. cross-border acquiring business. The same trend is expected in the fiscal third quarter.
Management expects fiscal third-quarter net revenue growth in nominal terms to be as low as 2% to 3%.
Interest expense related to $16 billion in long-term debt raised last December for the Visa Europe transaction will lead to higher interest expense, which will affect the company’s bottom line.
With a lower revenue growth range and including interest expense from $16 billion in debt, the company expects constant currency earnings per share growth in low double digits.
Higher incentives and rebates will also drain the bottom line.
Nevertheless, new initiatives undertaken by the company to boost demand for electronic and mobile payment facilities are likely to have a favorable impact in the to-be-reported quarter. Service and transaction processing revenues are likely to have been strong.
In addition, Visa’s earnings may have got a boost from increased card usage owing to an expanding customer base and continued growth in electronic payments.
Earnings Whispers
Our proven model does not conclusively show that Visa is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Visa’s Earnings ESP is -1.49%. This is because both the Most Accurate estimate is pegged at 66 cents per share, a penny below the Zacks Consensus Estimate.
Zacks Rank: Visa carries a Zacks Rank #2 (Buy). Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes our surprise prediction difficult.
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:
Moody’s Corp. (MCO - Free Report) has an Earnings ESP of +8.07% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 22.
American Express Co. (AXP - Free Report) has an Earnings ESP of +1.04% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 20.
Global Payments Inc. (GPN - Free Report) has an Earnings ESP of +1.47% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 28.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>