With Europe in recession, the Chinese and Asian economies slowing, and the United States the only major economy showing signs of recovery, I've been shifting my focus back toward U.S.-based companies.
With a steady, cash-flow-rich business that benefits from a steadily expanding global sector, one of my favorite new long-term ideas is Visa (V).
As the world's largest credit-card network, present in more than 200 countries and territories, Visa is benefiting from the relentless emergence of a global cashless society.
Today, credit cards are responsible for over $2.5 trillion in transactions each year. That number is growing inexorably year after year, as the new members of the global middle class all around the world turn to credit and debit cards in lieu of cash and checks to conduct transactions.
Visa's extensive networks also give it one of the most powerful competitive advantages of any company in the world, creating an incredibly wide moat that keeps potential new competitors from even trying to enter into the global-payments technology space.
The U.S. is still is responsible for the biggest chunk of Visa's revenue. And despite the economic slowdown of the past three years, the U.S. market continues to grow.
For the 12 months ended June 30, Visa expanded its acceptance by 400,000 U.S. merchant locations.
Visa's major challenge in the U.S. is the newly regulated U.S. debit card market. The Durbin Amendment, added at the last minute to the Dodd-Frank bill, caps the interchange fee for debit card transactions at $0.21
For retailers, the capped fee has reduced the amount of bank charges that they pay. But like any good business, Visa is passing on the costs of lost revenue to you and me.
Although the United States remains Visa's top source of revenue, senior management's goal is to drive 50% of revenue from international markets by 2015.
After all, that's where the money is. Most recently, Visa's international businesses grew 19% in the fourth quarter, driving 65% of Visa's overall revenue growth.
In Latin America, Visa has increased its market share in each of the past five years. In the Asia-Pacific region, Visa's payments volume grew by 17% for the most recent quarter.
In addition to geographic expansion, Visa is aggressively stepping up investment in new technologies that will increase transactions on its core business platforms and create new revenue opportunities.
Today, 46% of all e-commerce transactions are conducted with a Visa product. Visa is actively working to grow that number through acquisitions, including CyberSource, PlaySpan and Fundamo.
Visa has a premium brand, a nearly impossible-to-replicate network and double-digit percentage earnings growth going forward.
The company maintains a solid balance sheet as a result of its IPO in 2008, holding $7.4 billion in cash and almost zero debt.
And Visa's revenue has been growing at a compounded annual growth rate of 13.6% during the past three years amid some very tough economic times.
Using a discounted cash-flow methodology, most analysts put a value of about $125 per share on the stock, a solid 23.33% premium to where it closed yesterday. With an attractive valuation and a wide moat protecting its business, Visa looks like a long-term winner.
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