"Credit card demand has exploded in recent years. Today, credit cards are responsible for over $2.5 trillion in transactions each year," notes Ian Wyatt.
The editor of Top Stock Insights explains, "And no company is better positioned to capture the digital transaction market than Visa (V); further, investors have a window of opportunity right now to pick up shares at a great price.
"Different from credit card-issuers, Visa is shielded from the consumer credit troubles (such as delinquencies and defaults) because they don't lend to consumers.
"Instead, card issuing banks carry exposure to consumer credit risk. Visa accepts no credit risk from cardholders since the company only provides the payment processing network, and does not directly issue cards to consumers.
"In exchange for providing this digital processing network, Visa charges banks a fee to process card payments on their own plastic. The more frequently consumers charge with their Visa plastic cards, the more the company will earn by way of fees.
"The trend towards plastic, as opposed to cash for transactions, is likely to continue here in the U.S. and overseas in the coming years providing a healthy tailwind for Visa.
"Consumers are increasingly turning to credit and debit cards in lieu of cash and checks to conduct transactions. As swiping and PIN punching consumers lap up the convenience, Visa drinks in the profits.
"For the nine months ended June 30, 2010, the company reported an 18% year-over-year increase in sales to $5.9 billion from $5.1.
"Earnings per share over the same two periods increased 23% to $2.97. In the most recent quarter sales expanded 23% to $2.03 billion.
"The company maintains a solid balance sheet as a result of its IPO in 2008 with $7.4 billion in cash and almost zero debt.
"Additionally, the acquisition of security company CyberSource in July of 2010 will begin to add to revenue and EPS starting this year.
"In the $2 billion takeover Visa acquired a company that processed over $120 billion in transactions for 2009. The deal gives Visa exposure to the $1 trillion a year eCommerce market, and expands its international presence.
"Revenues are expected to grow 16% this year and 14.5% next year. Earnings should expand at a faster rate of 33.5%, to $3.90 from $2.92, this year. Next year, EPS should increase another 21%, to $4.72.
"These projections result in a current PE of 18.7 and a forward PE of 15.5. The stock should be trading upwards of 20-times forward earnings, resulting in a target price of $95.
"In addition to the share price appreciation, the stock pays a 1% annual dividend. Combined the stock has over 30% potential.
"Visa is a well positioned company in a growing sector that is experiencing a temporary slowdown due to reduced consumer spending and declining credit card limits.
"As the global economy continues to recover, and consumers increasingly turn to plastic to conduct transactions, Visa should grow once again.
"With an attractive valuation and a wide moat protecting the business, Visa looks like a long-term winner."
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