Where Will Visa Be in 5 Years?

Is Visa a Good Stock to Buy?

Although it’s important to carefully consider the role of any stock within your portfolio, Visa currently looks like a good buy for a wide range of investors. Much of this has to do with the company’s recent performance and growth.

In Q2, for example, Visa reported year-over-year revenue growth of 11 percent and GAAP net income growth of 17 percent.

The company also showed signs of continued expansion as a leading payment processor, with total transaction volume up 10 percent over the previous year.

Visa has the additional advantage of an economically dominant position within its industry. It accounts for nearly 50 percent of all credit cards circulating in the United States, with all of its competitors combined making up the other 50 percent. This gives Visa a strong moat that is likely to hold up for the foreseeable future.

The company is also highly profitable and has an attractive return on equity over the past 12 months exceeding 50 percent.

Another positive factor for prospective Visa shareholders is the fact that it appears to be a good dividend growth investment. Although Visa’s yield is just 0.8 percent, the payout has grown by over 14 percent annually for the past three years.

At under 25 percent, Visa’s payout ratio gives management considerable room to raise the dividend in the future. As such, investors who buy today could realize much higher yields on their cost basis over the next several years.

How High Can Visa Stock Go?

The highest analyst price target issued for Visa over the coming year is $300. This is about 32 percent higher than the stock’s current price and represents a high watermark for Visa shares in the short run.

Over long time horizons, however, it’s all but impossible to say when Visa will peak or what its maximum price could eventually be. What is certain is that Visa has already produced exceptional long-term returns for its shareholders.

The credit card processor went public in 2008, and its shares initially opened at $44. The company split its shares on a 4-for-1 basis in 2015. At today’s prices, each original share of Visa purchased in 2008 would now be worth over $900.

Where Will Visa Stock Be in 2025?

Over the next-3-5 years, analysts expect Visa to grow its earnings at a compounded rate of about 15.3 percent annually.

The trailing 12-month earnings of $8.59 per share suggests that the company would generate annual earnings of approximately $11.40 by 2025.

Assuming Visa’s price-to-earnings ratio remains stable and share prices track earnings growth, the stock would rise from its current price of about $228 to roughly $300.

It’s also important to consider that Visa could see additional price support from its ongoing share buyback program. In Q2 alone, the company repurchased 10 million shares of its stock at a price of $2.2 billion. Management has authorized a further $11.8 billion for repurchases, which could substantially concentrate ownership for remaining shareholders.

Where Will Visa Stock Be in 5 Years?

Applying the same basic prediction method to the 5-year time horizon, Visa shares would rise to around $465. It should be noted, however, that this is likely a best-case scenario for the company and its stock.

Slower growth or a less favorable set of macroeconomic conditions could easily cause Visa stock to plateau or rise at a slower pace during this time period.

One possible obstacle to the growth rate predicted for Visa over the next five years is the potential for a tightening of lending standards among financial institutions. In the wake of recent financial turmoil, banks and other lenders may choose to extend credit more selectively.

This kind of tightening could soon come to the credit card industry, as Americans are currently carrying a record of nearly $1 trillion in total credit card debt.

With consumers increasingly using credit cards to cover everyday expenses, it becomes increasingly likely that delinquencies will rise and cause companies to limit new credit lines. 

Is Visa a Risky Stock to Buy?

Overall, Visa is a relatively conservative investment. The stock appears more or less fairly priced at today’s levels, with a forward price-to-earnings ratio of 26.4 and a price-to-earnings-growth ratio of 1.73.

Visa’s debt-to-equity ratio is slightly high at 0.56, but its cash reserve of $13.8 billion gives the company a great deal of financial buffer room.

Another indicator of Visa’s relatively modest risk profile is its extremely high level of institutional ownership. Institutional investors currently own nearly 85 percent of the company’s outstanding shares, suggesting a high degree of confidence in the stock from Wall Street.

With that said, Visa still carries certain risks. As noted above, tighter lending standards could slow earnings growth over the next few years. Visa and other credit majors are also extremely susceptible to cybersecurity risks, and a major unexpected breach could affect investors negatively.

Visa Stock Price Forecast

Visa’s short-term price targets largely mirror its longer-term projections. Over the coming 12 months, analysts expect the stock to reach a median price target of $268. This would represent a gain of approximately 17.9 percent.

It’s worth noting that the lowest standing price target for Visa is $220, just 3.2 percent lower than its current price. Of the 39 analysts covering Visa, only one has issued a sell rating on the stock.

These analyses reflect a consensus opinion that Visa is a relatively low-risk investment that could have considerable upside potential as earnings continue to grow.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.