Visa May Normalize the DJIA With Split on Earnings

The company’s fiscal first quarter of 2015 was reported as having $1.6 billion in net income, an increase of 11% over the prior year. Its earnings per share rose 15% to $2.53. Thomson Reuters had a consensus estimate of $2.49 per share.

Net operating revenue was up 7% to $3.4 billion in the in the fiscal first quarter. That was above the $3.34 billion consensus estimates. Visa said that this gain would have been up 9% on a constant dollar basis — meaning that the strong dollar lowered its earnings. That growth was from service revenues, data processing revenues and international transaction revenues.

And back to the split. The reason this matters so much is that Visa is the largest weighted of all 30 DJIA stocks. The Dow is price-weighted rather than being a market cap-weighted index. Trading will begin on a split-adjusted basis on March 19, 2015. Visa is currently weighted as 9.2% of the entire Dow due to its $248 share price, and that is worth more than the bottom seven of the 30 DJIA stocks combined.

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As long as the split acts the way we would expect, then Visa will drop to a normalized index component weighting rather than being such a dominating force on the DJIA. Again, we will wait for S&P Dow Jones Indices to confirm before we cheer this (see below).

Visa further said that it sees 2015 operating margin in the mid-60 percentage points, and it sees 2015 free cash flow of over $6 billion, with Class A share earnings growth in the mid-teens.

Unit metrics were listed as follows, but these are noted as being on a constant-dollar basis rather that on a currency-adjusted basis:

• Payments volume growth was 11% over the prior year at $1.2 trillion.
• Payments volume growth was 11% over the prior year at $1.2 trillion.
• Cross-border volume growth was 8%.
• Total processed transactions were 17.6 billion, a 10% increase over the prior year.
• Service revenues were $1.5 billion, an increase of 8% over the prior year, and are recognized based on payments volume in the prior quarter.

Visa shares closed up 0.6%, or up $1.64, at $248.00. The stock was initially up 4% at $257.99 in the after-hours trading session following the report. Its 52-week range is $194.84 to $269.32. The consensus analyst price target is now $285.78.

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Visa’s split and multiple classes of stock are described verbatim below:

Also, on January 28, 2015, Visa’s board of directors declared a four-for-one split of its class A common stock. On March 18, 2015, each class A common stockholder of record at the close of business on February 13, 2015 (the “Record Date”), will receive a dividend of three additional shares for every share held on the Record Date. Trading will begin on a split-adjusted basis on March 19, 2015. Holders of class B and C common stock will not receive a stock dividend. Instead, the conversion rate for class B common stock will increase to 1.6483 shares of class A common stock per share of class B common stock, and the conversion rate for class C common stock will increase to 4.0 shares of class A common stock per share of class C common stock. Immediately following the split, the class A, B and C stockholders will retain the same relative ownership percentages that they had prior to the stock split. The stock split will increase the Company’s total as-converted shares of class A common stock outstanding as of March 19, 2015, from approximately 614 million shares to approximately 2.5 billion shares based on the share count as of January 27, 2015.