Sterne Agee analysts Greg Smith and Jennifer Dugan rate Visa Inc (NYSE:V) as Neutral as they expect a solid quarter in their F1Q14 preview.

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Visa Inc (NYSE:V) is scheduled to report F1Q14 (Dec.) results on January 30 with a call at 8:30 am ET. With card volume data points coming in largely as expected in the quarter, we anticipate at least in-line results and believe that Visa will at least reiterate its FY14 guidance. Our F1Q14 EPS estimate of $2.16 matches consensus while our revenue forecast of $3.113bn is $20mn below consensus.

Visa’s F1Q14 estimates

We forecast Visa Inc (NYSE:V)’s F1Q14 (Dec.) EPS of $2.16, ahead 12% y/y on revenue of $3.113bn, ahead 9% y/y. We forecast an operating margin of 64.2%, up 80 basis points from 63.4% in the year-ago quarter, aided by lower advertising and marketing spend and lower personnel expenses as a percentage of total revenue. We forecast incentives of $615mn, representing 16.5% of gross revenue, up from 16.3% in the prior year quarter. We expect transaction growth to moderate from +13% y/y in the September quarter to +10% y/y this quarter, but expect volume growth to remain steady at +10% y/y.

Intra-quarter indicators bode well

On average, the major card issuers plus third-party payment facilitator PayPal reported volume growth of 7% y/y in calendar 4Q13, just behind the +8% average growth seen in calendar 3Q13. First Data metrics for December indicated a pick-up in the growth rate from November into December. Visa Inc (NYSE:V) did not report data beyond the month of October, though visibility into quarterly revenue growth is still fairly good for Visa given that roughly half of its quarterly revenue (Service fees) is driven by payments volume from the prior quarter. On its 3Q13 call, Visa noted that payments volume in the U.S. began slowing in September, moving from +11% in August to +8% in September before recovering a little to +9% in October. While potentially caused by reduced consumer sentiment before and during the U.S. Federal government shutdown, the slower trend did trigger Visa to adopt a more tepid assumption for economic growth on its September quarter call.

Expectations from Visa’s earnings

1) We expect Visa Inc (NYSE:V) to maintain its current FY14 guidance, 2) we will look for an update on the company’s efforts to regain PIN debit routing market share with the strategy and pricing implemented in April 2012, 3) we will look for an update on volume and transaction trends for the months of November, December, and January, 4) we will look for buyback appetite given the company’s ongoing repurchase authorizations, and 5) we do not expect an update on the Durbin debit legislation despite the recent oral arguments in the case, as we do not expect to hear a final decision from the appeals court until mid 2014.