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Can Higher Operating Costs Affect Visa's (V) Q2 Earnings Growth?

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Visa Inc. (V - Free Report) is set to report its second-quarter fiscal 2024 results on Apr 23, after the closing bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for second-quarter fiscal 2024 earnings per share of $2.42 suggests a 15.8% increase from the prior-year figure of $2.09. The consensus mark remained stable over the past week. Also, the consensus estimate for to be reported quarter revenues of $8.6 billion indicates a 7.8% increase from the year-ago reported figure.

Visa beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 4.1%. 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

Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at V’s previous-quarter performance first.

Q1 Earnings Rewind

In the last reported quarter, the payments technology company’s adjusted earnings per share of $2.41 beat the Zacks Consensus Estimate by 3.4%, primarily on the back of expanding payments volume, cross-border volume and processed transactions. Strong consumer spending and a decline in overall expenses drove Visa’s performance. However, the upside was partly offset by an increase in client incentives.

Now, let’s see how things have shaped up before the second-quarter fiscal 2024 earnings announcement.

Q2 Factors to Note

Visa's fiscal second-quarter financial performance is anticipated to benefit from increased spending in the travel and entertainment sectors and cross-border volumes. Additionally, the ongoing adoption and popularity of digital payment methods are likely to have continued, contributing positively to Visa's overall results. The Zacks Consensus Estimate for fiscal second-quarter total Gross Dollar Volume indicates an increase of more than 6% from the year-ago period, whereas our model predicts 7% growth.

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 Zacks Consensus Estimate for fiscal second-quarter total processed transactions indicates 9.5% year-over-year growth, whereas our model predicts a 9.3% increase.

The consensus mark for total payment volumes indicates an 8.4% year-over-year increase, whereas our estimate suggests 8.8% growth. We expect the metric for U.S. operations alone to jump nearly 7% year over year. Similarly, our model predicts almost 15% and 20% year-over-year growth in Europe and Latin America, respectively.

The Zacks Consensus Estimate for data processing revenues indicates 11.5% growth in the fiscal second quarter from the year-ago level of $3.8 billion, while our estimate predicts an 11.4% increase. Similarly, the consensus mark for service revenues suggests 9.4% year-over-year growth, whereas we expect the metric to grow by 9%.

Furthermore, the consensus estimate for international transaction revenues indicates 10.5% growth from a year ago, whereas our model predicts an 11.1% increase. Growing cross-border volumes are expected to have supported the metric.

The factors stated above are expected to have positioned the company for strong year-over-year growth in the fiscal second quarter. However, rising expenses and client incentives (a contra-revenue item) are likely to have partially offset the positive impact of higher volumes, making an earnings beat uncertain.

We expect adjusted total operating expenses for the quarter under review to increase more than 10% year over year due to increased Personnel, Professional Fees and Network and Processing expenses. Also, both the Zacks Consensus Estimate and our model estimate for client incentives suggest that the metric will be higher than $3.4 billion in the fiscal second quarter.

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 has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate currently stands at $2.42 per share, in line with the Zacks Consensus Estimate.

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:

FirstCash Holdings, Inc. (FCFS - Free Report) has an Earnings ESP of +1.11% 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 is pegged at $1.50 per share, which suggests a 20% year-over-year jump. The estimate increased by a penny over the past week. FCFS beat earnings estimates in all the past four quarters, with an average surprise of 8.1%.

Fidelity National Information Services, Inc. (FIS - Free Report) has an Earnings ESP of +0.34% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for Fidelity National’s bottom line for the to-be-reported quarter is pegged at 96 cents per share, which improved by a cent over the past week. It beat earnings twice in the past four quarters and missed on other occasions. Furthermore, the consensus mark for FIS’ revenues is pegged at nearly $2.5 billion.

S&P Global Inc. (SPGI - Free Report) has an Earnings ESP of +5.42% and a Zacks Rank of 3.

The Zacks Consensus Estimate for S&P Global’s bottom line for the to-be-reported quarter is pegged at $3.50 per share, indicating 11.1% year-over-year growth. SPGI beat earnings estimates in two of the past four quarters, met once and missed on the other occasion, with an average surprise of 3.1%.

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

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