Visa, Inc. (NYSE:V)

http://www.fool.com/investing/general/2013/05/09/analysts-debate-is-visa-still-a-top-stock.aspx

Visa by the numbers
Here's a quick snapshot of the company's most important numbers:

Statistic

Result (TTM or Most Recent Available)

Market cap

$116.5 billion

Price/book

4.4

Price/sales

10.5

Forward P/E

20.7

Cash/debt

$2.72 billion / $0

Revenue breakdown (mrq)

Service: $1.37 billion
Data processing: $1.15 billion
International transaction: $0.83 billion
Other: $0.18 billion
Incentives: ($0.57 billion)

Competitors

MasterCard (NYSE: MA ) American Express (NYSE: AXP ) Discover Financial Services (NYSE: DFS )

Source: Yahoo! Finance, Visa quarterly report, mrq = most recent quarter.

Source: U.S. Navy. Commons.wikimedia.org.

Sean's take
There is no such thing as a riskless investment, but I have to admit that Visa comes extremely close. Aside from a global recession, Visa has positioned itself in multiple respects for sustained low double-digit growth.

To begin with, Visa and its biggest rival MasterCard are merely payment processors. American Express and Discover Financial Services act as both payment processors and lenders, which allow them to double-dip in profits, but it also exposes them to bad debt write-offs if the economy weakens and consumers stop paying their bills. As simple as payment processing sounds, it leaves Visa and MasterCard with no bad debt exposure and the freedom to grow with little risk.

Visa is also making big inroads overseas. The majority of global transactions are still conducted in cash, which leaves a moat of opportunity in emerging markets. In its most recent quarter, cross-border volume grew by 10%, which I believe should be a fairly consistent baseline for the company moving forward.

Prepaid debit cards are another of immense opportunity for Visa because many people had their credit harmed during the financial crisis. With annual prepaid debit card growth of 15% to end last decade, it's still a solid growth opportunity that's still largely untapped.

Finally, Visa has done a great job of returning money to investors via a dividend that's more than tripled over the past four years. It's also added billions in share repurchases which reduce the outstanding share count and make the company appear cheaper relative to its profits.

You can read a more detailed analysis about the key points that make me feel confident about Visa's future by clicking here. However, in a one sentence summation, these factors make Visa a perfect buy-and-hold candidate.

Alex's take
In the long run, it makes sense to bet on the expanding use of credit cards around the world. As Sean pointed out, most transactions are still done in cash, but there's plenty of room to expand in the non-cash transaction volume before Visa even needs to consider chipping away at all those cash payments. In North America and Asia, 60% of the non-cash payments are made with credit or debit cards, but less than 40% of non-cash transactions in Europe or the BRIC nations are credit-based. Simply expanding its reach in the extant non-cash sector would be enough to drive growth before an assault on the cash economy needs to take place.

The downside risk to investing in a company working with financial services is that economic headwinds often hurt the financial sector harder than others. But Visa's superior market position and better business model (also highlighted by Sean earlier) actually makes it a viable defensive investment during a recession or a slowdown, as you can see from this graph of the company's share-price movement relative to its peers:

V Total Return Price data by YCharts.

It's true that Visa is more expensive than its peers, but I've calculated a more normalized set of valuations discounting the one-time litigation charge that affected the company's 2012 results, and on those measures, Visa is valued quite similarly to MasterCard, a competitor half its size and with a very similar expectation of growth. You can read more of my reasoning by clicking here, but the gist of it is that I agree with my fellow Fools. Visa has a great shot at long-term outperformance.

Travis' take
Visa's real competitive advantage is in what's known as a network effect. Payment processors require merchants to have customers with Visa and customers require merchants that take Visa. Starting a payment processor is a chicken and egg conundrum and would be a nightmare to execute. But once you've built a payment processor network, it feeds on itself, drawing more merchants as customers sign up and more customers as more merchants sign up.

To demonstrate the power of Visa's network effect, think about how ubiquitous Visa has become. I went to a liquor store about a month ago that didn't accept Visa, and I almost went into a tirade. How could a successful business not accept Visa? This is blasphemy, I thought.

As a result, Visa has built a business that's nearly impenetrable by outside forces, and like Sean pointed out, it doesn't have to take credit risk. It's an expensive stock at 20.7 times forward earnings, there's no doubt about that, but great companies don't come cheap, and neither does Visa.

I'll happily go along with an outperform call, and I actually think the combination of both MasterCard and Visa is really the right way for individual investors to play this great space. For more on my outperform call, see my full article here.

The final call
That would indeed be a unanimous outperform CAPScall for Visa. Once again, the conclusion was the same for all three of us; however, the thinking that got us there took each of us down a different path. From Visa's network effect, which feeds upon itself, as Travis points out, to Visa's opportunity in non-cash transactions, according to Alex, and its incredible overseas opportunity coupled with its growing shareholder payback incentives, as I (Sean) noted, we are all led to believe Visa is the epitome of a buy-and hold selection.

Visa has been coming on strong for the past few months, and with the drive to rebuild, and make up for lost gains during the recession, credit is going to play a big role in making up for lost time.

The gold standard of credit cards.

Cash rich, global recovery

As the economy recovers plastic is how people shop and pay for things. V has decreased the number of shares in circulation every year since going public. Has twice as many Visa cards out there as MA cards. Square and things like it could be a concern.

Credit card use in America and throughout the world has become second nature to almost everyone. Visa, a titan of the industry, reaps the benefits of this increasingly cashless society.

Largest player in a very high margin business that is growing worldwide.

Strong and consistent top line and bottom line. ROE is consistent and above average returns of S&P 500. Long term debt is nil. No doors to entry. The players in this industry are limited to just a few established ones. V and Ma and AXP will outlive most of us.

Outperform

Wake up in the morning, brush teeth, get some coffee, watch Visa go up. Just another day I guess.

Economy is bound to bounce back and a solid management team at the helm

Visa and Mastercard have established networks that the majority of debit and credit card transactions are routed through.

Barron's article, The End of Cash:

http://online.barrons.com/article/SB50001424052748704723404578199742128875044.html?mod=BOL_article_full_popview#articleTabs_article%3D0

Excellent fundamentals, product that is universally accepted.

This is the "coke" story of the 21st century.

Dominant position in credit cards, plus investing heavily into the mobile market. Sure to grow further.

Industry leading company with its logo on over 60% of credit cards worldwide. The company will likely increase market share as new credit cards are more often issued on the Visa network. The company makes money on transactions and therefore doesn't have to deal with loans and the like, freeing up its balance sheet from liabilities. This company will continue to lead into the electronic payment revolution that is upon us.

Monopoly

who uses cash anymore? and visa is among the few pieces of plastic you can carry...and if you dont pay? ....they dont care...they get paid when you swipe...its the banks that have top deal with the bad debts...steadily profitable and they have raised the dividend hand over fist lately....its a high P/E zero debt company...but the money just keeps on coming in....stability in a world lacking it

Base on Jim Cramer 10/9 rec