(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of V.)
Shares of Visa Inc. (V) have increased 27% this year, nearly seven times the gain of the S&P 500, despite a pullback in October. Now, Visa's shares are quickly rebounding and may rise 13% higher to a new all-time high, according to analysts' consensus price target. Technical analysis also directionally supports this bullish outlook. One factor attracting investors may be that Visa's valuation is low compared to recent years.
Shares of the fintech payment processor fell as much as 12% in October, greater than the broader stock market sell-off. These declines happened despite the company delivering better than estimated fiscal fourth quarter results.
Currently, analysts have an average price target on Visa of $163.25, 13% higher than the current stock price of $144.40. Since July that price target has increased by 12%. In fact, of the 37 analysts who cover the stock, an overwhelming 92% have a buy or outperform rating. Only 8% have a hold rating.
Analysts estimate that Visa will deliver earnings growth of 16% in the fiscal first quarter of 2019 on a revenue gain of 11% Full-year estimates for 2019 are also forecast to rise by 15% on revenue growth of 11%. Those revenue and earnings growth rates are expected to last through the year 2021.
This robust growth leaves the stock trading at a 2020 PE ratio of 23. That valuation comes at the lower end of its historical range since 2014.
Additionally, the technical chart suggests the stock may rise. The price has risen past technical resistance at $143, which indicates the stock is poised to increase by 5% to $150.60. The relative strength index (RSI) fell below 30 in October, an indication the stock may have been oversold. Now the RSI is starting to climb, and it would suggest that bullish momentum is moving back into the stock.
Visa is likely to continue to thrive as global consumer trends shift toward the use of more debit and credit cards. While that should provide fuel for its shares, the aging bull market could cause more sell-offs and drag down Visa short term.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.