Visa is Thursday's IBD Stock Of The Day as the payments processor looks well-positioned to seize on growth opportunities and steer clear of potential pitfalls. Visa stock charged past a couple of early entry points as rival Mastercard also flashed strength. After Wednesday's close, Visa announced its biggest acquisition in a couple of years, a $1 billion cash deal for Brazilian payments infrastructure startup Pismo.
Student Loan Ruling
Big news awaits on Friday. The Supreme Court is set to rule on the constitutionality of President Biden's $400 billion student loan forgiveness plan. The conservative-led court could let it stand if it finds that GOP-led states lacked standing to sue. But if the court strikes down the debt-cancellation plan, a moderation in consumer spending could turn into something worse.
Deutsche Bank figures that a resumption of student loan payments will cut consumer spending by up to $14 billion per month. That amounts to $305 per borrower, analysts Gabriella Carbone and Krisztina Katai wrote on June 21. Interest will begin accumulating on student debt on Sept. 1, with first payments due in October.
U.S. Economy Shows Resilience, Helping Visa Stock
Credit card lenders like Capital One have been setting aside funds to cover future losses, anticipating a continued rise in delinquencies. That's not an issue for credit card payment processors Visa and Mastercard, though a consumer slowdown would curtail processing fees.
For now, at least, the U.S. economy continues to defy gloomy expectations. On Thursday, the Commerce Department reported that real GDP grew 2% in Q1, revised up from 1.3%.
Some more timely indications continue to point to resilient consumer activity. Deutsche Bank estimates that June auto sales rose to an annual rate of 15.5 million units, up from 15.1 million in May. On Tuesday, Delta Air Lines said it expects 2023 profit to land at the top of its prior outlook of $5-$6 per share. Revenue is now seen rising 17%-20%, up from 15%-20%.
Visa gets higher margins from processing cross-border transactions, and the news looks decent on this front as well. Visa said that cross-border payments grew 17% from a year ago in May, compared with 5% growth in the U.S.
Visa's Political Risk
The other risk to credit-card transaction fees is political. A bipartisan group of senators reintroduced the Credit Card Competition Act this week. The bill would require big banks to give merchants at least two networks to choose from in processing credit card transactions. As it stands, Visa-branded cards are only processed through Visa's network, and the same goes for Mastercard.
In a June 7 analysis ahead of the bill's reintroduction, BTIG analyst Isaac Boltansky said the bill could lead Visa and Mastercard to lose market share. However, he cast doubt on its prospects for passage. While the bill is popular among retailers, he noted that the politics around it are complicated. That's because it would likely dilute credit-card rewards programs that are popular with consumers.
Visa's Growth Engines
Visa's financial results mildly decelerated in Q1 as revenue growth slipped to 11% and EPS growth to 17%. In a May 31 appearance at a Bernstein investor conference, outgoing Visa CFO Vasant Prabhu highlighted big opportunities ahead, thanks to three growth engines. While traditional consumer payments continue to see solid growth, "new flows and value-added services can grow faster" than payments for a long time to come.
The new flows comprise new-use cases for Visa's network, including peer-to-peer payments, payroll and cross-border remittances.
"It just makes you feel pretty good that not only can historic growth rates be sustained, but you also have the opportunity to accelerate them because of these new businesses," he said.
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Visa Stock Action
Visa stock rose 2.65% to 234 in Thursday stock market action. The move carried Visa stock past its 50-day moving average with some conviction. Clearing that key technical level, where institutional investors tend to scoop up shares, the stock flashed one early entry point.
At the same time, Visa stock broke through the down-sloping trendline from its recent peak on April 21.
Visa stock has an official flat-base buy point of 235.57.
Meanwhile, Mastercard stock also flashed an early entry, distancing itself from its 50-day line, clearing short-term levels and breaking a trendline. MA stock rose 1.7% to 386.71. It has an official flat-base buy point of 392.20.
