Warren Buffett Sees Upside for Visa Stock
In case you haven’t noticed, billionaire investor Warren Buffett is a big fan of Visa Inc (NYSE:V) stock. By the end of last year, the “Oracle of Omaha” owned 9.89 million shares of Visa stock, worth more than $766 million. (Source: “Form 13F,” U.S. Securities and Exchange Commission, February 16, 2016.)
The good news is that it might not be too late to get on the profit train. Going forward, there are quite a few catalysts that could send the stock a lot higher.
Wide Economic Moat
Coined by Mr. Buffett himself, “economic moat” refers to a company’s competitive advantage that can protect itself from the competition. When it comes to competitive advantage, few companies can match that of Visa.
The credit services industry is essentially an oligopoly with four main players: Visa, Mastercard Inc (NYSE:MA), American Express Company (NYSE:AXP), and Discover Financial Services (NYSE:DFS). The best part is that Visa is way ahead in the game.
According to Card Hub, Visa had a dominant 47.4% market share by network purchase volume in 2015. American Express was a distant second at 25.4%, Mastercard had 23%, while Discover had a tiny 4.2%. (Source: “Market Share by Credit Card Network,” Card Hub, last accessed March 30, 2016.)
If you look at the number of cards in circulation, Visa would be even more dominant. By the end of 2015, there were 329 million Visa cards in circulation, which would be more than all Mastercard cards (192 million), American Express cards (58 million), and Discover cards (57 million) combined.
With tens of millions of businesses on its payment network, Visa’s success is hard to duplicate. Whether it’s existing players in the industry or potential entrants, taking profit away from Visa would be a difficult task indeed.
As you would expect, a wide economic moat leads to solid financials. Despite the lackluster macroeconomic climate around the world, Visa has been growing at an impressive pace in recent years.
The company’s operating revenue has grown from $11.8 billion in fiscal 2013 to $12.7 billion in fiscal 2014, and then to $13.9 billion in fiscal 2015. If you exclude the negative impact of exchange rate fluctuations, growth would have been even more impressive. (Source: “Q4 2015 Earnings Release,” Visa Inc, November 2, 2015.)
Top-line improvements have translated to the bottom line. In the previous three fiscal years, Visa’s adjusted net income has climbed from $5.0 billion in 2013, to $5.7 billion in 2014, and then to $6.3 billion in 2015.
Visa’s fast-growing business attracted many investors. In the past three years, Visa’s stock price skyrocketed 92%.
Visa Stock Just Broke Out
Of course, like any stock, Visa can’t be smooth sailing forever. V stock experienced a downturn from mid-December to January. But after the company reported earnings on January 28, the stock picked up some upward momentum.
Chart courtesy of www.StockCharts.com
However, the momentum did not seem enough, as the stock couldn’t go beyond the $75.00 resistance level. Then finally on March 29, Visa stock broke above the resistance level. Today, the momentum seems to be continuing as Visa stock climbed another 1.6% to $76.62.
The Bottom Line on Visa Stock
At the end of the day, there are many forces behind Visa stock and it’s hard to predict where it could go next. But given the company’s wide economic moat and efficient operations, following Warren Buffett might not be a bad idea.