Financial Services Stocks

Visa Inc. Analysis – August 2015 Update $V

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Visa Inc. (V) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Visa Inc. is a payments technology company. The Company is engaged in operating a processing network, VisaNet, which facilitates authorization, clearing and settlement of payment transactions across the world. The Company provides its services to consumers, businesses, financial institutions and governments in more than 200 countries and territories for electronic payments. The Company offers fraud protection for account holders and rapid payment for merchants. The Company provides a variety of payment solutions that support payment products that issuers can offer to their account holders, such as pay now with debit, pay ahead with prepaid or pay later with credit products. The Company offers a suite of digital, eCommerce and mobile products and services.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of V

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 1.98
MG Growth Estimate 15.00%
MG Value $76.36
Opinion Fairly Valued
MG Value based on 3% Growth $28.76
MG Value based on 0% Growth $16.86
Market Implied Growth Rate 13.70%
Current Price $71.21
% of Intrinsic Value 93.26%

Visa Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short history as a publicly traded company and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.87 in 2011 to an estimated $1.98 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 13.70% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Visa Inc. (V)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

V Charts - August 2015

Net Current Asset Value (NCAV) -$0.30
PEmg 35.91
Current Ratio 1.74
PB Ratio 6.09
Dividend Yield 0.65%
Number of Consecutive Years of Dividend Growth 7

 

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Most Recent Balance Sheet Figures

Total Current Assets $10,068,000,000
Total Current Liabilities $5,789,000,000
Long-Term Debt $0
Total Assets $39,429,000,000
Intangible Assets $23,200,000,000
Total Liabilities $10,802,000,000
Shares Outstanding (Diluted Average) 2,448,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.51
Sep14 $2.16
Sep13 $1.90
Sep12 $0.79
Sep11 $1.29
Sep10 $1.00
Sep09 $0.78
Sep08 $0.15

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.98
Sep14 $1.62
Sep13 $1.29
Sep12 $0.92
Sep11 $0.87
Sep10 $0.57
Sep09 $0.30
Sep08 $0.05

Recommended Reading:

Other ModernGraham posts about the company

Visa Inc. Quarterly Valuation – May 2015 $V
5 Most Undervalued Companies for the Enterprising Investor – May 2015
5 Undervalued Dow Components to Research – May 2015
10 Companies Benjamin Graham Would Invest In Today – April 2015
5 Undervalued Dow Components to Research – April 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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