Visa Inc (V), Mastercard Inc (MA): A Stellar Quarter if You Ignore the Missing $1 Billion

Visa Inc (NYSE:V) is fairly specific about their expectations for 2013, in that the company is calling for “low 20s” diluted EPS growth and “about $6 billion in annual free cash flow.” The company is equally specific about expectations for 2014, calling for “mid to high teens earnings growth” and “about $5 billion in annual free cash flow.” Does anyone other than me notice the fact that the company is calling for a full $1 billion drop in annual free cash flow between 2013 and 2014?

Given that Visa Inc (NYSE:V) is experiencing strong earnings growth, and expects this to continue into next year, what could be the cause of this $1 billion decline? Even more important, in the last nine months Visa spent $4.7 billion on share repurchases in dividends. One has to wonder how the company could continue spending this amount if a projected $3.75 billion would be available in free cash flow. If these assumptions are accurate, something is going to have to give, and it seems more than likely that share repurchases would have to be curtailed.

Long-term investors should be asking the question, what will Visa Inc (NYSE:V) spend this $1 billion on instead of share repurchases and dividends? If the company wisely spends these funds on future expansion that’s one thing, but if the company is just going to generate less free cash flow, that’s another story altogether. In fact, I wonder if the stock should be charging ahead given this worrisome outlook.

Chad Henage has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard.

The article A Stellar Quarter if You Ignore the Missing $1 Billion originally appeared on Fool.com.

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