ModernGraham Valuation: Visa (V)

 

money

Company Profile (obtained from Google Finance): Visa Inc. (Visa) is a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. The Company operates processing networks, VisaNet, offering fraud protection for consumers and assured payment for merchants. The Company operates an open-loop payments network, a multi-party system in which Visa connects issuing financial institutions, or issuers, that issue cards to cardholders, and acquiring financial institutions, or acquirers, that have the banking relationship with merchants-and manage the exchange of information and value between them. The Company derives revenues primarily from fees paid by its clients based on payments volume, transactions that it processes and other related services the Company provides. Its clients deliver Visa products and payment services to consumers and merchants based on product platforms it defines and manages.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Calculator)

Key Data:

MG Value $197
MG Opinion Fairly Valued
Value Based on 3% Growth $74
Value Based on 0% Growth $44
Market Implied Growth Rate 15.47%
Net Current Asset Value (NCAV) -$1.70
PEmg 39.44
Current Ratio 1.89
PB Ratio 5.89

Balance Sheet – 9/30/2013 

Current Assets $6,941,000,000
Current Liabilities $3,671,000,000
Total Debt $0
Total Assets $35,285,000,000
Intangible Assets $23,049,000,000
Total Liabilities $8,282,000,000
Outstanding Shares 787,000,000

Earnings Per Share – Diluted

2013 (estimate) $7.73
2012 $3.16
2011 $5.16
2010 $4.01
2009 $2.04
2008 $0.58

Earnings Per Share – Modern Graham

2013 (estimate) $5.12
2012 $3.54
2011 $3.27
2010 $2.00
2009 $0.83
2008 $0.19

Conclusion:

Visa is not suitable for the Defensive Investor because it is a relatively “new” company after only having its IPO a few years ago.  Having such a recent IPO makes the financial information less available, and as a result, Defensive Investors (those that do not have the time to do as much research as Enterprising Investors) should shy away from Visa.  However, the company does appear that it may be suitable for Enterprising Investors.  Visa has achieved a positive EPS in each of the last 5 years, has grown earnings over the last 5 years, pays a dividend, and has a strong financial condition.  Enterprising Investors should do further research while keeping in mind the 7 Key Tips to Value Investing.  From a valuation perspective, the company appears to be fairly valued.  The earnings have shown significant growth even in the short period of time available for analysis, and the market seems to be on target with its implied growth estimation.

What do you think?  Is Visa fairly valued?  Is the company suitable for only Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Visa at the time of publication and had no intention of purchasing a position in the next 72 hours.

Photo Credit:  Andrew Magill


Posted

in

by

Comments

One response to “ModernGraham Valuation: Visa (V)”

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.