Visa May Have The Best Business Model In The Market

Summary:

  • Visa is levered to the trend toward a cashless society, and we like that the firm doesn’t take on credit risk like that of a few of its peers.
  • The firm generates operating margins north of 60%, while it converts roughly half of every dollar generated as revenue into free cash flow.
  • Visa’s dividend yield isn’t as large as that of the average S&P 500 company, but the firm’s dividend growth prospects are phenomenal, in our view.
  • At the high end of our fair value estimate range, we value shares of Visa at $259 per share, and that implies potential upside to where shares are currently trading (~$227 per share).

Man using a credit card to pay bills

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By Valuentum Analysts

The trend toward a cashless society is inevitable, and there are a number of companies where one can gain exposure to this dynamic, but our favorite is Visa (NYSE:V). Many investors know Visa as

Our fair value estimate range for Visa's shares.

Our fair value estimate range for Visa’s shares. (Image Source: Valuentum)

Visa is a free cash flow generating powerhouse and is insulated from rising delinquency and charge offs, unlike others in the credit card space.

Visa is a free cash flow generating powerhouse and is insulated from rising delinquency and charge offs, unlike others in the credit card space. (Image Source: Visa)

Visa's dividend growth potential is fantastic.

Visa’s dividend growth potential is fantastic. (Image Source: Valuentum)


Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.


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