Visa Faces Cautious Growth Outlook

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Visa (ticker: V) is gearing up to announce its fourth-quarter earnings next week, but some segments of Wall Street are becoming more skeptical about the company’s growth prospects.

Mizuho Securities analysts have lowered their price target on Visa shares by $15 to $240 each, while maintaining a Neutral rating on the stock. Their concern lies not with any missteps by Visa, but rather with the consensus expectations for the U.S. economy, which directly impacts Visa’s performance. These expectations may be unrealistically high.

According to Dan Dolev, an analyst at Mizuho, the growth in U.S. personal-consumption expenditures (PCE) has been unusually high in recent years due to inflation and the gradual reopening of the economy after the pandemic. However, with inflation moderating, PCE growth is expected to taper off, which will eventually have a negative effect on Visa’s revenue growth in fiscal year 2024.

Dolev suggests that to achieve the projected 10.5% revenue growth for Visa in fiscal year 2024, PCE would have to increase by $1.1 trillion to $1.2 trillion. However, he believes that a more likely scenario is a 9.7% revenue growth for the next fiscal year.

As a result, Dolev has slightly adjusted his revenue projections for fiscal years 2024 and 2025, now estimating $35.8 billion in revenue for 2024 and $39 billion for 2025. This would translate to Visa trading at 23 times fiscal year 2025 earnings, a slight decrease from the previous estimate of 24 times.

It’s worth noting that Dolev’s cautious stance on Visa is not shared by many other analysts. Among the 38 analysts surveyed by FactSet, 84% rate Visa shares as a Buy, with an average price target of $279.67, implying an 18% upside from current trading levels.

Looking ahead to Visa’s upcoming fourth-quarter earnings release, analysts expect a 14% growth in profit to $4.6 billion compared to the same quarter last year. This would result in earnings of $2.25 per share on revenue of $8.6 billion.

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