Visa (V) is reportedly laying off 7% of its workforce and plans to use the resulting savings to invest in business areas that it believes have strong potential. Given the impressive success of the company's “value-added” initiatives last quarter, Visa's upcoming investments will likely yield favorable results in the longer term.
Importantly, Visa delivered solid fiscal third-quarter financial results on July 28. The recent layoffs are also likely to boost its profit margins and bottom line to some extent. Finally, the valuation of V stock appears reasonably attractive, given the company's growth.
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With these points in mind, both value investors and conservative investors may want to consider buying V stock.
www.barchart.com Layoffs and Investments Should Meaningfully Boost Visa Stock
Visa intends to dismiss approximately 2,600 employees through the layoffs, slashing its workforce by about 7%. The maturation of artificial intelligence (AI), which has enabled more work to be streamlined and carried out automatically by computers, is one reason behind the move.
Visa intends to use some of the proceeds from the workforce reduction to invest in growth areas like “affluent customers, cross border activity, business payments, stablecoins and geographic expansion,” per CNBC. The outlet cited an unnamed source with knowledge of the matter.
Last quarter, value-added services revenue surged 34% year-over-year (YOY) on a constant currency basis to $3.8 billion, according to CFO Chris Suh on the Q3 earnings call. In light of Visa's past success in increasing revenue generated by items outside of its core payments business, the investments that it plans to make after the layoffs stand to yield considerable benefits down the road.
Visa Reports Superb Q3 Results
In Q3, net revenue climbed 14% YOY to $11.6 billion. Meanwhile, non-GAAP EPS advanced 11% YOY to $3.32. Payments volume also rose 10% YOY, excluding currency fluctuations.
According to Suh, management expects “full-year net revenue growth to now be in the low end of low teens.” That's versus the previous outlook of a low-double-digit to low-teen gain. “We expect full-year EPS growth to now be in the low end of mid-teens,” Suh added on the earnings call.
Valuation and Wall Street's View
Shares of Visa currently change hands at a forward price-to-earnings (P/E) ratio of 27.9 times. That may look high to investors, considering the average forward P/E for the financial services sector is closer to 15 times. However, given that Visa continues to grow — and that the company is likely to boost its profits further through cost cutting while being poised to increase its top and bottom lines via new investments — the valuation appears attractive.
Analysts on the whole seem to be very upbeat on V stock. On Wall Street, Visa holds a consensus “Strong Buy” rating. Of the 40 analysts with coverage, 33 have a “Strong Buy” rating, four analysts have a “Moderate Buy,” and three analysts have a "Hold' rating.
www.barchart.com On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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