Visa's Rangebound Price Could Hint At A Recession
"Long-Term Investors Should Take Advantage Of This Dividend Compounder"
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When it comes to high-quality businesses, I can say with confidence that Visa Inc. (V) is one of the best companies an investor can own. Yet despite its elite fundamentals, the stock is up only single digits over the past year. In fact, Visa’s share price has remained rangebound for roughly six months.
In my view, this underperformance has little to do with Visa’s execution and far more to do with macroeconomic uncertainty. The market appears to be pricing in the possibility of a recession over the next year or two. And I largely agree with that assessment.
Another Earnings Beat Amid Declining Sentiment 🏆
Visa once again proved why it’s a best-in-class business with a strong Q4 earnings report in late October.
Q4 highlights:
EPS: Beat estimates by $0.01
Revenue: Beat expectations by ~$100 million
Quarterly revenue: $10.7 billion
Full-year results:
Revenue: $40.0 billion (+11.4% YoY)
EPS: $11.47 (+14.1% YoY)
Peer Mastercard (MA) reported similar performance, with revenue and EPS growth of roughly 15% and 11%, respectively. While Visa’s growth slowed modestly from the exceptional pace seen in 2023–2024, sustaining double-digit growth in today’s environment is a clear testament to the company’s fundamentals.
Is Consumer Sentiment Signaling a Recession? 🤔
Consumer sentiment has trended lower in recent years as inflation has pressured household budgets. While sentiment improved in December, this was likely driven by holiday spending and temporary government-related tailwinds.
Despite interest rates being lower than last year, it will likely take time before consumers feel meaningful relief. At the same time, signs of labor-market weakness are beginning to emerge.
Key macro concerns include:
Rising unemployment
The steepest decline in private employment in over two years
Increased loan defaults
Elevated household and credit card debt
While markets currently price in roughly a 25% probability of a recession, I believe the risk over the next year or two is higher. Because markets are forward-looking, this helps explain why Visa’s share price has remained under pressure.
Why This Creates an Opportunity 💡
For long-term investors, macro uncertainty can be an advantage. And I’ve been adding shares in the $320–$330 range. But I am hopeful for a potential pullback closer to $300, which would represent a compelling long-term entry point in my opinion.
Visa’s fundamentals remain intact, and any macro-driven weakness should be viewed as an opportunity rather than a warning sign.
Activity: Solid Results, High Expectations 👍🏾
Despite concerns about consumer spending, Visa’s activity metrics remained healthy during the quarter.
Q4 activity metrics:
Payment volumes: +8% YoY to $14 trillion
Transactions: +10% YoY to 258 billion
While both metrics were flat compared to the prior year’s growth rates, Visa is often held to an exceptionally high standard. In my view, maintaining this level of growth during a slowing economy is impressive and was a key driver behind Visa’s double-digit earnings growth.
Network Expansion & Innovation 🏗️
Visa continues to widen its moat through technology investments and network expansion.
Key strategic initiatives:
Expanded card issuance and settlement currencies
Support for four stablecoins across four unique blockchains
Deployment of VisaNet, an AI-enabled processing platform designed for easier scaling and faster deployment
Management also highlighted strong traction in digital payments:
Visa tokens grew from 10 billion to 16 billion since May 2024
130 stablecoin-linked card programs across 40+ countries
Stablecoin-linked Visa card spending quadrupled year-over-year in Q4
These initiatives position Visa well for the next phase of global payments.
Another Double-Digit Dividend Increase 💵
Visa’s sub-1% dividend yield may not appeal to income investors at first glance, but dividend growth is where the real value lies.
In October, they raised their dividend 13.6% to $0.67, exceeding my expectations.
Cash flow strength:
Q4 free cash flow: $5.49 billion
Q4 dividends paid: $1.15 billion
FY free cash flow: $21.57 billion
FY dividends paid: $4.63 billion
FCF payout ratio: ~21%
In addition, Visa returned significant capital to shareholders through buybacks:
$5 billion in Q4
$18.2 billion for the full fiscal year
This capital-light business model makes Visa a textbook dividend compounder.
Management Still Expects Double-Digit Growth ↗️
Even with macro risks rising, Visa’s management remains confident.
Management expects double-digit growth in the upcoming fiscal year
Q1 is expected to deliver the strongest top-line growth due to timing effects from pricing actions
This guidance reinforces Visa’s resilience and pricing power.
Long-Term Upside Remains Attractive 📉
In the near term, I expect Visa to continue trading in the $330–$340 range until economic clarity improves. If macro conditions deteriorate further, a drop below $300 would represent a high-conviction buying opportunity.
Looking longer term:
FY 2028 price target: ~$442
In a soft-landing scenario, Visa could reach this level faster than expected
Bottom Line ✅
Visa’s recent underperformance has far more to do with macro uncertainty than deteriorating fundamentals.
While near-term volatility is likely if economic conditions weaken, Visa’s:
Double-digit earnings growth
Capital-light business model
Strong balance sheet
Consistent double-digit dividend increases
..seems to position the company well for strong long-term returns.
For patient investors, Visa remains a high-quality compounder worth accumulating. Particularly on macro-driven weakness.
Happy Investing!
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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