Visa (V), the world’s largest bank card network, deserves credit for building one of the strongest franchises in the financial services industry. The company’s execution and marketing power has helped it become one of the world’s iconic consumer and business brands.
With the explosive growth of electronic transactions, it’s no wonder that Visa shares generated a 45 percent total return last year. The company also raised its dividend 47 percent in 2011.
Visa’s expansion should keep right on coming. Paperless payments will account for 64 percent of U.S. consumer transactions by 2013, according to the Nilson Report, a payment systems newsletter. Cards will be used to pay for 50 percent of the total amount of transactions, according to Morningstar.
In the third quarter, Visa credit card spending grew faster in the United States than debit card spending for the first time since at least 2005. That’s largely because wealthy consumers increased their spending, a good sign for Visa.
Now that debit fee rules have been finalized and interchange rules are less onerous than originally proposed, a crucial source of uncertainty has been eliminated for the company.
Mobile device payments are likely to be the next major trend in the credit services industry. That may well help Visa, as it’s likely to stand as one of the major payment networks for mobile.
The company reported net income of $880 million in the third quarter, up 14 percent from $774 million a year earlier. Revenue gained 13 percent to $2.4 billion.
Standard & Poor’s analyst Scott Kessler has a hold recommendation on Visa shares. “We see a pick-up in payment volumes ahead, aided by the secular trend toward non-cash payments and strong growth prospects for cards in emerging markets, which we think will help as the global economy recovers,” he writes.
“We are optimistic about growth initiatives that include expansion in pre-paid cards, mobile payments, money transfer, and e-commerce. V's ability to curtail expense growth should aid earnings.”
The company next reports earnings Feb. 2.
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