Can a strong Q1 earnings boost the Visa share price?

Global payments processor Visa [V] is expected to report an 18.9% rise in revenues from the year-ago quarter and a 19% increase in earnings year-on-year when it publishes its Q1 numbers on 27 January.

The Visa share price is expected to rise if the company maintains a positive note on expansion into new sectors. According to analysts at Zacks, Visa is expected to post quarterly revenue of $6.8bn, up from $6.6bn in the previous three months.

Earnings per share (EPS) are forecast to come in at $1.69. In the last reported quarter, analysts were expecting EPS of $1.53 but Visa generated $1.62, a surprise 5.9% increase. Yet, the Visa share price doesn’t necessarily rise if the company beats estimates.

Over the past four quarters, Visa has crushed consensus EPS estimates and it is generally expected to do the same on Thursday. Yet, historically this have always not given a bounce to Visa’s share price.

“Our performance was driven by the continuation of the recovery in many global economies and the increased diversification of our revenue with new flows and value-added services”, chairman and CEO Alfred Kelly said following the announcement of Q4 FY21 results in October. “We continue to drive the rapid growth of digital payments and enable innovation in money movement globally."

Visa’s share price performance

The Visa share price ended 2021 close to where it started at the beginning of the year. Over the past five years, the Visa’s share price has increased by 150.7% compared with the S&P 500 return of 89.7%.

The stock has fallen 8.8% since the beginning of 2022. While this may be due to the broader tech selloff, investors will be watching the numbers closely when Visa reports its Q1 results this week.

Compared with competitor Mastercard’s [MA] stock price, which rose 218.5%, the Visa share price has risen less, leaving room for a further upside.

The pandemic has forced Visa to adapt

Visa is a transactions business and generally mirrors consumer confidence. While the world had to come to terms with the pandemic, the company adapted to the accelerating move towards cashless payments.

The company reported its full-year figures in October. Transactions for Q4 FY21 increased 21% on the prior-year quarter and payment volumes rose 17% during the same period.

Despite beating consensus estimates, the Visa share price fell following the full-year results announcement. The 2021 fiscal year was a tricky one for Visa, where it saw demand fluctuate as consumers dealt with lockdowns, supply chain issues, soaring inflation and the rise of the omicron variant.

Expansion into new sectors

Visa has been trying to maintain its market share in the global payments industry by moving into new sectors. Following the stellar growth in cryptocurrency in recent years, Visa has formed partnerships with players such as Coinbase to remain relevant in the sector. Visa’s share price is supported by such moves.

As more fintech firms deliver transparency and value to customers, Visa is expanding its cross-border payments solutions. In December it purchased Currencycloud, a B2B cross-border payments provider with "real-time notifications on foreign exchange transactions, multi-currency wallets, and virtual account management”.

Mixed outlook for Visa’s share price

Overall, analysts are bullish on the stock. According to Marketscreener, Visa has consensus ‘buy’ rating with an average price target of $267.15.

While the general view may be positive, not all analysts are convinced. The Visa share price suffered earlier this month after the Japanese investment bank, Mizuho Securities downgraded the stock from ‘buy’ to ‘neutral’, and cut its price target by 14% to $220 per share.

Mizuho thinks that the cash-to-card conversion, which helped Visa during the pandemic, has played out. It believes that the company now has a smaller path along which to grow in 2022.

Analysts at BNP Paribas share this pessimistic view, and also downgraded the Visa share price earlier in January from ‘outperform’ to ‘neutral’, with a price target of $210.

Despite these recent downgrades, the results on Thursday may be able to reverse the losses the Visa share price has delivered since the beginning of the year.