Financial Services Stocks

Visa Inc Valuation – June 2016 $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 Companies Benjamin Graham Would Invest In Today – June 2016.  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 and its subsidiaries, including Visa U.S.A. Inc. (Visa U.S.A.), Visa International Service Association (Visa International), Visa Worldwide Pte. Limited, Visa Canada Corporation, Inovant LLC and CyberSource Corporation (CyberSource), operate a processing network, VisaNet, which facilitates authorization, clearing and settlement of payment transactions around the world. The Company also offers fraud protection for account holders and rapid payment for merchants. The Company provides its services to consumers, businesses, financial institutions and governments in over 200 countries and territories for electronic payments. It provides a range of payment solutions that support payment products that issuers can offer to their account holders, including pay now with debit, pay ahead with prepaid or pay later with credit products. It also offers a suite of digital, e-commerce, person-to-person payments, and mobile products and services.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of V – June 2016

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 $182,963,238,414 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.74 Pass
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 890.00% Pass
6. Moderate PEmg Ratio PEmg < 20 32.33 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.19 Fail
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 4.74 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.83 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

V value chart June 2016

EPSmg $2.32
MG Growth Estimate 15.00%
MG Value $89.37
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $33.66
MG Value based on 0% Growth $19.73
Market Implied Growth Rate 11.91%
Current Price $75.05
% of Intrinsic Value 83.97%

Visa Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.89 in 2012 to an estimated $2.32 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 11.91% 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.

Visa Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

V charts June 2016

Net Current Asset Value (NCAV) -$0.37
Graham Number $28.51
PEmg 32.33
Current Ratio 4.74
PB Ratio 6.19
Current Dividend $0.52
Dividend Yield 0.69%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $24,303,000,000
Total Current Liabilities $5,125,000,000
Long-Term Debt $15,876,000,000
Total Assets $54,326,000,000
Intangible Assets $23,171,000,000
Total Liabilities $25,195,000,000
Shares Outstanding (Diluted Average) 2,401,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.69
Sep2015 $2.58
Sep2014 $2.16
Sep2013 $1.90
Sep2012 $0.79
Sep2011 $1.29
Sep2010 $1.00
Sep2009 $0.51
Sep2008 $0.24

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.32
Sep2015 $2.01
Sep2014 $1.62
Sep2013 $1.27
Sep2012 $0.89
Sep2011 $0.83
Sep2010 $0.52
Sep2009 $0.23
Sep2008 $0.08

Recommended Reading:

Other ModernGraham posts about the company

9 Best Stocks For Value Investors This Week – 11/28/15
Visa Inc Valuation – November 2015 Update $V
The Best Stocks of the Financial Services Industry – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15
Visa Inc. Analysis – August 2015 Update $V

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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.  See my current holdings here.  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.  Please be sure to review our detailed disclaimer.

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