On Wednesday, Visa (click ticker for report: V) reported strong fiscal third-quarter results that revealed 25% adjusted earnings growth in the period. The firm’s GAAP net operating revenue advanced 10% over the prior-year period thanks to solid growth in service revenues, data processing revenues, and international transaction sales. Importantly, during the period the company announced a settlement agreement in the Multi-District Litigation case, which we think will reduce uncertainty for payment processors. Our fair value estimate remains unchanged.
Payments volume growth during the quarter expanded 6% from the prior-year period, and though the pace of expansion is lower than in the first quarter (11%), we were pleased with the rate of increase. Service revenues jumped 15% versus the prior-year period, while data processing revenue jumped 17% from last year’s quarter. International transaction revenues and other sales grew 13% and 7%, respectively, from the same period a year ago.
Looking ahead, Visa now expects adjusted earnings per share growth in the low twenties through 2012 (was high teens to low 20s), a level we think is achievable. Annual net revenue growth is expected in the low double digits, and the firm’s adjusted annual operating margin should be close to 60% for the full year. Impressively, management expects to generate $4 billion in free cash flow during the year.
All things considered, we were pleased with both the top-line and bottom-line expansion during the period as well as the company’s outlook. Further, we think Visa’s decision to authorize a new $1 billion share repurchase program makes a lot of sense at current price levels. We continue to like the company as a holding in the portfolio of our Best Ideas Newsletter and may add to position on any minor weakness.