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Evaluating The Headwinds Of Visa


The negative effect of low gasoline prices on Visa is likely to remain for the foreseeable future but it is limited.

The dilution of the shareholders of Visa due to the acquisition of Visa Europe will be offset by the ongoing aggressive share repurchase program.

The strongest headwind is the heating competition among large retailers, which has led them to squeeze the fees of card companies as much as possible.

Visa (NYSE:V) has vastly outperformed S&P (NYSEARCA:SPY) in almost any time horizon one can think of. For instance, it has outperformed S&P during the last 5 years (266% vs. 80%), 2 years (55% vs. 10%) and one year (20% vs. 13%). Nevertheless, it has faced some significant headwinds lately and hence some investors have started to doubt whether the company can keep outperforming the market in the future. In this article, I will evaluate the headwinds that the company is facing.

First of all, Visa has an exceptional record in execution and growth, which guarantees the ability of the company to surpass most of the hurdles it faces. Even better for the shareholders, despite its excellent performance, the company never rests on its laurels. Instead it continuously tries to innovate in order to improve its performance. This is evident in the achievements of the company, such as the recent launch of new software, which drastically reduces the processing time of chip cards. While a few seconds may seem negligible to most people, they are very important to large retailers, who try desperately to reduce the length of their queues.

Regarding the headwinds facing Visa, the first one is the lower gasoline price. This may seem surprising on the surface, as most companies greatly benefit from cheap oil. However, Visa is negatively affected as most consumers pay for their gasoline with their credit card. Therefore, as the price of gasoline is only half of what it used to be until two years ago, Visa receives reduced fees from gas stations. Unfortunately for the company, while oil has strongly rebounded off its lows in February, it has stabilized and seems to be consolidating around its current range, with no signs for a further strong rebound. Consequently, this headwind is likely to persist...