Visa Targets Growth through Partnerships and Acquisitions
Increased leverage
Visa (V) took on debt of $16 billion to partially fund its acquisition of Visa Europe. The company has a debt-to-equity ratio of 55%, higher than the industry average of 40%. The notes are issued at fixed rates of interest ranging from 1.2% to 4.8%, with maturities of between two and 30 years.
Before incorporating debt for acquisition, Visa was a debt-free entity. Here’s how some of Visa’s peers in the payment-processing industry have fared with their leverages in the last fiscal year:
-
MasterCard (MA) — 22%
-
American Express (AXP) — 513%
-
Discover Financial Services (DFS) — 203%
Together, these companies account for 2.3% of the Technology Select Sector SPDR ETF (XLK).
Visa had cash and equivalents and available-for-sale investment securities of $24.8 billion as of December 31, 2015. The company expects significant startup costs for setting up domestic operations in China.
Renewal of partnerships
In the recent quarter, Visa has successfully renewed its partnership with Wells Fargo (WFC) and has partnership agreements in place with five out of its top six customers until at least 2020. Visa’s total balance sheet stood at $55 billion as of December 31, 2015. This compares to $38.5 billion in fiscal 4Q14. The company generated free cash flows of $7 billion in fiscal 2015.
Visa deploys cash for dividends, share repurchases, investments in technology, and expansion plans. Visa is also engaged in repurchasing its own shares.
In fiscal 2015, Visa repurchased a total of 44.1 million shares at an average price of $66, totaling $2.9 billion or 1.5% of its total market capitalization. Visa is authorized to further repurchase up to $800 million of its stock under the existing plan approved by the board.
Browse this series on Market Realist: