With the year almost over, we’re taking a look at all 30 stocks in the Dow Jones Industrial Average, starting with the worst performers—
Walgreens Boots Alliance
—and working our way up to the highest-flying stock in the benchmark—Apple. The ranking may shift before the close of 2020 trading, but the stories behind the stocks shouldn’t.
A recovery in global travel and international commerce should make Visa a solid bet.
The Dow component managed a 16.2% gain this year, beating the index’s return of 6.6% through Dec. 30. That actually counts as a lousy year for
(ticker: V). Its five-year annualized returns average 22%, about double the Dow’s gains.
The card network took a beating in the second quarter as the pandemic carved away 10% of global transaction volume. More consequential was a collapse in revenues from cross-border transactions on Visa’s network—a high-margin segment critical to sales and profits. Cross-border travel drove nearly a quarter of Visa’s card revenues before the pandemic, according to MoffettNathanson analyst Lisa Ellis. Cross-border collapsed 80% in April and was still down more than 60% in November.
That part of the business should gradually recover as countries reopen and travel bans recede with vaccines for the coronavirus. Visa’s sales, meanwhile, are getting a lift from other areas, including payment flows in growth segments such as business-to-business (B2B), business-to-consumer (B2C) and person-to-person (P2P). Visa Direct, a real-time payments network for all three types of payments, is growing rapidly.
“You wouldn’t even know there is a pandemic going on,” Visa vice chairman Vasant Prabhu said at a conference in November, noting that Direct volumes were up more than 60% this year, similar to pre-pandemic rates.
Prabhu also said international e-commerce on Visa’s network is booming, growing faster than before the crisis. “There is a lot of cross-border e-commerce that this pandemic has enabled,” he said. “That’s going to be a bigger business when this crisis ends.”
Visa isn’t the only payments company riding growth in digital payments, and it has been a laggard.
(SQ) and the Dutch company
(ADYEN:NETHERLANDS) have left Visa and its chief rival
(MA) in the dust this year. The digital pure plays are riding a wave of commerce shifting online from bricks-and-mortar retail, and they are growing more rapidly, threatening to siphon transaction volumes from the big card networks.
But the card networks and pure plays also feed off each other. Visa and PayPal recently expanded a partnership, enabling P2P payments on Visa Direct to run through PayPal, including its Venmo and Xoom apps (for foreign money transfers).
Ellis calls Visa Direct “fire in the bottle,” and it’s one reason she rates the stock a top pick with a $260 target, implying gains of 26% from recent prices around $206.
Visa now trades at 29 times estimated 2022 consensus estimates of $7.17 a share. Ellis expects profits to come in at $7.49. Visa would trade at 35 times at her target. That would be steep, even for Visa, which has averaged a forward multiple of 27 over the last five years. If the shift to a cashless society continues, though, and Visa can make more headway in new payment flows, it may be warranted.
Write to Daren Fonda at [email protected]