Visa Inc., the well-known provider of global payment solutions, provides credit and debit programs for financial institutions. The company itself does not assume the credit risk of individual users of its services; rather it takes a fee on each transaction. Accordingly, the company’s earnings are sensitive to the general level of global economic activity and the secular trend of adopting paperless financial transaction methods. Interestingly, the company offers a unique hedge against inflation since higher purchase prices translate directly into higher transaction fees.
In it latest quarter, the company reported earnings per share grew by 21% year/year to $1.49, $0.04 better that analyst estimates. Sales grew by 14% year/year to $2.55 billion, better than $2.47 billion estimates. On valuation, the stock holds a forward P/E of 20 on 2012 earnings estimates of $5.96 per share, a 19% year/year increase in earnings. This gives the company a PEG (price to earnings ratio over growth) of roughly 1 — a low valuation given the company’s unique global franchise.
The stock chart shows an abundance of demand for the stock and a lack of sellers, with recent trading forming a tight price consolidation following an up-gap after the February 2012 earnings report.
Trading rules dictate to enter the stock when it summits the 120 area on an increase in trading volume. On such an event, the stock may be good for 15-20% within a few weeks using a 5% initial stop loss.