Visa Inc. (NYSE:V) shareholders are probably feeling a little disappointed, since its shares fell 6.6% to US$185 in the week after its latest annual results. Revenues of US$22b were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at US$4.89, missing estimates by 2.3%. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Following the latest results, Visa's 25 analysts are now forecasting revenues of US$23.2b in 2021. This would be a reasonable 6.1% improvement in sales compared to the last 12 months. Per-share earnings are expected to increase 7.3% to US$5.45. In the lead-up to this report, the analysts had been modelling revenues of US$24.0b and earnings per share (EPS) of US$5.76 in 2021. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the small dip in earnings per share expectations.
Despite the cuts to forecast earnings, there was no real change to the US$220 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Visa, with the most bullish analyst valuing it at US$250 and the most bearish at US$171 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Visa shareholders.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Visa's past performance and to peers in the same industry. We would highlight that Visa's revenue growth is expected to slow, with forecast 6.1% increase next year well below the historical 11%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 14% next year. Factoring in the forecast slowdown in growth, it seems obvious that Visa is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at US$220, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Visa going out to 2024, and you can see them free on our platform here.
You still need to take note of risks, for example - Visa has 2 warning signs we think you should be aware of.
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