Visa (V 0.87%) is often considered a stable long-term investment. It owns one of the world's largest card payment processing networks, it has consistently grown through economic downturns, and its stock has risen more than 400% over the past 10 years.
Wall Street remains upbeat about its future. Of the 37 analysts who cover Visa, 30 rate it as a buy, seven rate it as a hold, and none rate it as a sell. It's also still trading well below the Street's highest price target of $378 -- which was set by Bernstein's Harshita Rawat earlier this month.
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Rawat expects Visa's international expansion and some currency tailwinds from a weaker U.S. dollar to offset its slower domestic growth. In the U.S. market, she expects the company's card volume growth to hold steady even as inflation stays sticky.
Rawat also notes that Visa could benefit from more relaxed regulations under the Trump Administration, and its stock is still trading at historically low valuations. So, should investors buy Visa's stock before it hits her price target?
What has happened to Visa over the past few years?
Visa, like its primary competitor Mastercard (MA 1.44%), doesn't issue any credit and debit cards on its own. It only partners with banks and other financial institutions to issue Visa-branded cards, and those partners actually handle all those accounts.
Visa is only responsible for routing card payments through its global processing network, and it charges a swipe fee of about 1.5% to 3.5% per transaction. It splits those fees with the card issuers and keeps the rest as its revenue. That lightweight business model lets the company expand quickly without taking on too much credit risk.
Visa and Mastercard hold a near-duopoly in card-based payments -- even as Capital One tries to acquire the distant underdog Discover to build its own payment processing network -- so their merchants generally agree to pay their swipe fees to serve a broader range of customers. These two market leaders also can't be easily disrupted by digital payment apps, since most of those wallets still need to be linked to a debit or credit card.
From fiscal 2019 to fiscal 2024 (which ended in September 2024), Visa's revenue had a compound annual growth rate (CAGR) of 9% as its earnings per share (EPS) had a CAGR of 13%. It achieved that stable growth even as the global economy was rattled by the pandemic, geopolitical conflicts, soaring inflation, and rising interest rates.
What will happen to Visa over the next few years?
Visa's business model is resilient, but investors shouldn't ignore its long-term challenges. Over the past two decades, it has faced constant pressure from merchants to reduce its swipe fees. Visa and Mastercard agreed to reduce their fees to appease those merchants last year, but a U.S. judge rejected that settlement last June because the cuts weren't deep enough.
Under the Biden Administration, the Federal Reserve passed Regulation II, which requires merchants to offer a third option for processing debit card transactions on a network that isn't Visa or Mastercard. The Justice Department also sued Visa last September for "monopolizing" over 60% of the country's debit transactions.
Those regulatory challenges cast a dark cloud over its U.S. business, which was already growing at a much slower rate than its international business.
Visa could also face unpredictable macro challenges. The Fed plans to slow down its interest rate cuts this year, which suggests inflation hasn't been tamed yet. Meanwhile, the stubbornly strong U.S. dollar could offset a lot of its overseas growth.
Yet those headwinds could dissipate under the Trump Administration, which favors a weaker dollar and plans to relax regulations on U.S. companies. If Visa overcomes those challenges and the macro environment warms up again, its growth will likely stabilize over the next few years. From fiscal 2024 to fiscal 2027, analysts expect Visa's revenue and EPS to have a CAGR of 10% and 13%, respectively.
Is it the right time to buy Visa stock?
At $323, the stock looks reasonably valued at 26 times next year's earnings. But at $378, the highest analyst's price target, it would trade at 30 times that estimate. I think Visa is still worth buying today before it hits that target, but I would be wary of buying it at higher prices. The company is a solid long-term investment, but investors should carefully assess its regulatory and macro challenges before loading up on its stock.
