Financial Services Stocks

Visa Inc Valuation – February 2018 $V

Company Profile (obtained from Marketwatch): Visa, Inc. engages in the provision of payment services. It also facilitates global commerce through the transfer of value and information among global network of consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It offers debit card, credit card, prepaid products, commercial payment solutions, and global ATM. The company was founded by Dee Hock in 1970 and is headquartered in San Francisco, CA.

V Chart

V data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of V – February 2018

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 $282,345,377,380 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.07 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 204.76% Pass
6. Moderate PEmg Ratio PEmg < 20 40.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.78 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 2.07 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.86 Fail
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 $3.09
MG Growth Estimate 13.52%
MG Value $109.75
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $44.77
MG Value based on 0% Growth $26.24
Market Implied Growth Rate 15.93%
Current Price $124.59
% of Intrinsic Value 113.52%

Visa Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.62 in 2014 to an estimated $3.09 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 15.93% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Visa Inc revealed the company was trading above its Graham Number of $32.63. The company pays a dividend of $0.66 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 40.36, which was above the industry average of 21.55. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.00
Graham Number $32.63
PEmg 40.36
Current Ratio 2.07
PB Ratio 8.78
Current Dividend $0.66
Dividend Yield 0.53%
Number of Consecutive Years of Dividend Growth 10

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $17,287,000,000
Total Current Liabilities $8,363,000,000
Long-Term Debt $16,621,000,000
Total Assets $67,154,000,000
Intangible Assets $43,271,000,000
Total Liabilities $33,753,000,000
Shares Outstanding (Diluted Average) 2,353,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.07
Sep2017 $2.80
Sep2016 $2.48
Sep2015 $2.58
Sep2014 $2.16
Sep2013 $1.90
Sep2012 $0.79
Sep2011 $1.29
Sep2010 $1.00
Sep2009 $0.78
Sep2008 $0.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.09
Sep2017 $2.53
Sep2016 $2.25
Sep2015 $2.01
Sep2014 $1.62
Sep2013 $1.29
Sep2012 $0.93
Sep2011 $0.88
Sep2010 $0.59
Sep2009 $0.32
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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