Visa through my 'first look' lens; The latest on Tesla's robotaxis
1) In response to yesterday's e-mail, in which I took a first look at credit-card processing company Mastercard (MA), a number of readers asked me to look at sister company Visa (V)...
As several of these folks argued, Visa is just as good a business – and the stock is cheaper.
So as requested, I'll discuss the stock today through my usual "first look" lens...
Note that Visa and Mastercard have been nearly identical – and spectacular – performers since March 2008, when Visa went public:
As with Mastercard, Visa's revenue and net income have risen rapidly and steadily over the past two decades:
Visa is also a free-cash-flow ("FCF") machine, with almost no capital expenditures ("capex"):
Turning to the balance sheet, it looks good – with only a small amount of net debt:
Visa's capital allocation shows one large acquisition (about a decade ago, paying $23.4 billion in cash and stock for Visa Europe – hence the flip from net cash to net debt)... a few small acquisitions... a small dividend (the yield is currently about 0.7%)... and large and growing share repurchases:
The steady share repurchases have reduced the share count by 28% since Visa went public in 2008:
Visa's financials are nearly identical to Mastercard's – they both appear perfect in every way.
But there's also the same little problem: Visa's stock valuation also looks very high.
With a roughly $646 billion market cap (28% higher than Mastercard's as of Tuesday's close when I ran the numbers), adding net debt would give Visa a $654 billion enterprise value.
But Visa is a large company, so its multiples are a bit lower: trading at 17.4 times trailing revenue (versus 17.8 times for Mastercard, as of Tuesday's close)... 24.8 times trailing earnings before interest, taxes, depreciation, and amortization (versus Mastercard at 28.8 times)... and 34.7 times trailing earnings (versus Mastercard at 39.1 times).
Consensus analyst earnings estimates for this year are $11.34 per share. So that would mean Visa is trading at 30.4 times current-year earnings (versus Mastercard at 34.8 times).
In summary, I like Visa's stock better than Mastercard's because it's a slightly bigger, better business – yet its stock is cheaper.
This is exactly the kind of high-quality business we look for in our flagship newsletter, Stansberry's Investment Advisory. And in fact, my team recommended buying Visa in the April 2020 Investment Advisory issue!
Subscribers who followed the advice to buy the stock back then are up more than 125%.
If you're an Investment Advisory subscriber, you can read the full write-up by my colleague Alan Gula right here.
If you aren't, find out how to become one – plus gain access to our entire archive... full portfolio of open recommendations and specific advice on positions... and receive our next 12 monthly issues that will each have our favorite timely stock idea – by clicking here.
2) I continue to follow Tesla's (TSLA) launch of its robotaxi service in Austin, Texas... which I think will have profound investment – and societal – implications.
Here's a recent Wall Street Journal article about it: Tesla's Robotaxis Are Here: What You Need to Know. Excerpt:
Tesla rolled out its long-awaited robotaxi service in Austin, Texas, on Sunday, opening the electric-vehicle maker to the growing autonomous ride-hailing market, where its technology will be put to the test against market leader Waymo.
Chief Executive Elon Musk has said the company will start small, with as many as 20 Tesla Model Ys driving on public roads, before expanding the service based on the technology's performance. There won't be a human driver behind the wheel. In a post on X, Musk said customers will be charged a flat fee of $4.20.
In an invitation shared on social media, Tesla said a safety monitor would sit in the front-right passenger seat.
Tesla is taking an approach that some say is bold – and others say is reckless and won't work – by using computer vision and artificial intelligence, bypassing 20 cameras and LiDAR sensors, as the below two posts on social platform X recently noted.
I agree with the comment in the first one: "This is going to be one of the most fascinating case studies in the history of capitalism. Cannot wait."
And here's the second:
However, I'm skeptical that Tesla's approach will work. As the WSJ article notes, "Tesla said a safety monitor would sit in the front-right passenger seat."
Well, that means it's not really autonomous. In fact, I took a ride in a Waymo five years ago that required a safety driver – as I detailed in my June 29, 2020 e-mail, which included this picture (I know, I haven't aged a day!):
All that said, Tesla CEO Elon Musk and his team have a long track record of technological breakthroughs... so I wouldn't bet against them.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.