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Visa Inc Valuation – November 2018 $V

Company Profile (excerpt from Reuters): Visa Inc. (Visa), incorporated on May 25, 2007, is a payments technology company that connects consumers, merchants, financial institutions, businesses, strategic partners and government entities to electronic payments. The Company operates through payment services segment. The Company enables global commerce through the transfer of value and information among the participants. The Company’s transaction processing network facilitates authorization, clearing and settlement of payment transactions and enables to provide its financial institution and merchant clients a range of products, platforms and value-added services. The Company is a retail electronic payment network based on payments volume, number of transactions and number of cards in circulation. The Company operates in party models, which include card issuing financial institutions, acquirers and merchants. The Company’s products/services include core products, processing infrastructure, transaction processing services, digital products, merchant products, and risk products and payment security initiatives.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of V – November 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 $301,247,162,015 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.61 Fail
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 302.21% Pass
6. Moderate PEmg Ratio PEmg < 20 34.17 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.19 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 1.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.41 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 $3.97
MG Growth Estimate 14.65%
MG Value $150.00
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $57.54
MG Value based on 0% Growth $33.73
Market Implied Growth Rate 12.84%
Current Price $135.60
% of Intrinsic Value 90.40%

Visa Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.01 in 2015 to an estimated $3.97 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 12.84% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Visa Inc revealed the company was trading above its Graham Number of $38.16. The company pays a dividend of $0.83 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 34.17, which was above the industry average of 29.68. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.38.

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) -$7.38
Graham Number $38.16
PEmg 34.17
Current Ratio 1.61
PB Ratio 9.19
Current Dividend $0.83
Dividend Yield 0.61%
Number of Consecutive Years of Dividend Growth 11

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $18,216,000,000
Total Current Liabilities $11,305,000,000
Long-Term Debt $16,630,000,000
Total Assets $69,225,000,000
Intangible Assets $42,752,000,000
Total Liabilities $35,219,000,000
Shares Outstanding (Diluted Average) 2,305,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.18
Sep2018 $4.42
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 $3.97
Sep2018 $3.20
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

Visa Inc Valuation – February 2018 $V
12 Best Stocks For Value Investors This Week – 7/1/16
Visa Inc Valuation – June 2016 $V
9 Best Stocks For Value Investors This Week – 11/28/15
Visa Inc Valuation – November 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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