• Visa hits record $7 billion quarterly revenue
• Oilfield contractor Halliburton raises dividend for the first time in 7 years

VISA

Visa Inc. (V) is an electronic payment processor that makes money by being the middleman between banks and merchants. Since Visa does not issue any credit card of its own, it earns no interest charged on card payments. This, in turn, also shields the company from interest risk exposure.

However, Visa profits from charging a fee to its clients for authorising, clearing and settling credit and debit card payments. Birthed by Bank of America (BofA), Visa today is valued at about $480 billion, way ahead of BofA’s market cap of around $375 billion. 

Source: Googlecharts.com January 31, 2022

1Q22 Earnings Highlights

• Net Revenue: $7.06 bn, up 24% year-on-year
• Adjusted Earnings Per Share: $1.81 vs $1.42 a year ago
• Payments volume and Cross-border volume up 20% and 40%, respectively, from a year ago
• Quarterly cash dividend of $0.375 per share

Visa 1Q22 earnings surpass pre-covid levels

The company crossed the $7 billion revenue mark for the first time, exceeding pre-pandemic levels, in the quarter ended December 31, 2021. The 16.6% rise in revenue, compared to the December 2019 quarter, is supported by an increase in the number of cross-border transactions and pent-up demand. Visa also earns a currency conversion fee on international transactions, in addition to its usual payment processing charges. 

With only a partial revival of international travel and large restrictions due to the new omicron variant around the holiday season, cross-border transaction volume jumped 40% from a year ago. These robust numbers indicate a permanent shift to electronic mode of payment, as a positive by-product of the pandemic.

Visa’s Quarterly Revenue Growth from 2007 – 2021

Source: macrotrends.net, Jan 2022

Accelerated digital payments to be positive for the long-term growth of the company

Barring 2020- the first year of pandemic – Visa has consistently posted year-on-year growth in quarterly revenue. The board lifted FY22 net revenue growth outlook to “high end of high-teens” from “high end of mid-teens” earlier on expectations of accelerated digitisation and cross-border spending.

With strong fundamentals, Visa has turned stiff competition risk from fintechs into a new growth opportunity to expand its core business operations. Visa is bridging the crypto market with fiat currency world, having processed $2.5 billion crypto transactions in the last quarter alone. It has been partnering with buy-now-pay-later firms to allow installment payments using Visa credentials. Visa Direct, a real-time, card-to-account transfer network, is looking at a $65 trillion opportunity across P2P, B2 small B, B2C, and G2C segments.

Analysts maintain a strong buy on the stock

Investor confidence was evident after Visa stock hit record post-earnings gains of 10.6% on Friday, January 28. As per CNN business data, 25 analysts rate the stock buy, seven outperform and five hold with 12-month median price target of $277.50.

Halliburton

Halliburton Company (HAL) provides services and equipment to oil and gas producers – helping them locate energy reserves, evaluate projects and drill wells. The company has operations in over 70 countries with headquarters in Houston, Texas. 

Source: Googlecharts.com January 31, 2022

4Q21 Earnings Highlights

• Adjusted Earnings per share: 36 cents vs 18 cents a year ago
• Revenues: $4.28 bln, up 32%
• 2022 Q1 Dividend: $0.12 per share, a first-time hike since late 2014

Recovery in oil demand fuels quarterly earnings

Halliburton benefitted from rising crude oil and natural gas prices, as evident from the company doubling its fourth quarter profit to $320 million. Oil prices climbed over 50% last year and hovered around $85 a barrel in 2022 before the Brent breached $90 per barrel mark on January 27 – the first time since 2014. Escalating tension between Russia and Ukraine might further push crude oil prices beyond $100 a barrel rate, given the growing fuel appetite.  

Rivals Schlumberger (SLB) and Baker Hughes (BKR) also reported fourth quarter earnings beyond market expectations on the heels of rising drilling activity across North America. As per Baker Hughes data, the number of rigs in the United States hit 586 at the close of fourth quarter, a jump of 68% from a year ago. Drilling activity across North America has seen a surge during the last quarter as fuel supply fears linger on amid reopening of global economies. 

Sentiment across the industry is optimistic. While Halliburton’s top executive, Jeff Miller is “excited about the accelerating multi-year upcycle”, rival Schlumberger CEO expects oil demand to exceed pre-pandemic level by year-end and further strengthen in 2023.

Higher margins translate into higher cash flows

The fracking services provider boasts of high operating margins as its drilling and evaluation division posted 12% full year margins, its first time since 2014. Higher margins translated into stronger free cash flows of $1.4 billion at year end. Additionally, the company has focused on maximising capital efficiency by employing digitalization and automation across operations. It achieved a 70% reduction in headcount per rig by automating 60% of its iCruise drilling system.

Huge Capex plans of $1 billion for 2022 

In line with growing demand for oilfield services, the company plans to raise capital expenditure to about $1 billion in 2022, against $800 million in 2021, well within the target range of 5%-6% of revenue. With a favourable macroeconomic environment and robust financials of the company, the stock – which is often underestimated compared to its bigger rivals Schlumberger and Baker Hughes – looks attractive at current levels. 

Analysts maintain a positive outlook on the stock

While the energy sector is marked by its high cyclicality, the current upcycle in the sector is expected to last beyond a couple of years at least, after one of its worst downturns during 2020.

As per CNN Business data, 19 analysts rate the stock buy, three outperform, seven hold and two sell; with a median 12-month price target of $33.00. The stock has seen an impressive run up lately with a year-to-date returns of over 30% in 2022.