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Visa (NYSE: V), the famous credit and debit card business, which competes with MasterCard (NYSE: MA) and American Express (NYSE: AXP), reported results for the fourth quarter on Thursday. I came away from them feeling pretty bullish.
No, it wasn't so much the numbers as it was the fact that the credit-card concern constructed a litigation settlement with Discover (NYSE: DFS). The latter had antitrust issues with Visa, and it was a part of the company's story that bothered me. Visa will pony up almost $1.9 billion to Discover to make everything hopefully okay between the two (for more about the settlement, check out Elizabeth Harrow's post). Most of the money was already set aside in a fund in anticipation of the settlement. That's awesome.
And as for earnings, well, Visa lost money on a GAAP basis during Q4 driven by the litigation provision. But on an adjusted basis, excluding that provision and other charges, Visa earned $0.58 per diluted share. That was a penny better than Wall Street expectations.
This makes the Visa story even more attractive than it already was. Honestly, as a long-term investment, Visa should be a winner. I know the economy doesn't rule right now, but I don't think there's anyone out there who believes that credit cards are going away.
Consumer confidence is pretty low at the moment, but it won't always be. And even if it is low, will people stop using credit cards and debit cards? No. In fact, during Q4, total processed transactions increased 11%. Remember that Visa makes its money from transactions, not from loan risk.
Visa also knows that it is wise to concentrate on capturing more of the debit-card market. If people get turned off to borrowing credit because of the economy, it doesn't necessarily mean they want to pull out physical cash. Oftentimes they'll use debit cards linked to a checking account. And Visa can benefit.
Plus, I like that Visa is forecasting annual free cash flow over the next two years of $1 billion. For the twelve months ended September 30, 2008, Visa generated $1.7 billion of free cash (this is adjusted for the impact of the litigation provision).
Visa's stock has had trouble this year. Of course, what stock hasn't? I'm a fan of Visa and its prospects. I'm sure the stock will go up and down, down and up, over the next year. The market is going to test the patience of any long-term investor. But you should at least look at Visa. No loan risk with this one; it makes money off transactions. It's a big name in the business. Heck, you probably have a Visa card or two lurking in your wallet. And if you don't, you probably will sometime down the line.
Visa was up over 7% on Thursday, but started much lower than that this morning along with the market. But I concur with the market and its general bullish feeling on Visa.
Disclosure: I don't own any company mentioned; positions can change at any time.
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