Visa Inc. (V)

Equity
US
Financial Services

RISK

RETURN

Key risk factors

Strong trading liquidity

Low price volatility

Limited default risk

Key return factors

Very strong margins and returns

Greatly overvalued vs peers

Good growth

Company profileVisa Inc. operates as a payments technology company worldwide. The company facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. In addition, the company offers card products, platforms, and value-added services. It provides its services under the Visa, Visa Electron, Interlink, VPAY, and PLUS brands. Visa Inc. has a strategic agreement with Ooredoo to provide an enhanced payment experience for Visa cardholders and Ooredoo customers in Qatar. Visa Inc. was founded in 1958 and is headquartered in San Francisco, California.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

29.40

28.00

PEG

3.10

P/B

13.30

9.10

P/S

16.10

15.30

P/FCF

27.80

27.50

EV/EBITDA

23.40

22.50

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 3ppts and its growth decelerated by 2ppts in the past month. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months its performance trailed that of this peer group by 4ppts and its growth decelerated by 2ppts in the previous month. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 267 and suggests 3% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 314.1. This translates into 14% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 244.8. This is equivalent to 11% downside potential in the worst case.

Profitability: Very strong

RoE

Visa Inc. reported a return on equity (RoE) of 46.4% in the last 12 months, down from 48.4% in FY23. The market consensus projects an RoE of 42.7% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 20.1% in the last 12 months, a decrease from 20.4% in FY23. The market analysts predict that RoA will be 17.9% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 27.0%, below the peers. The consensus estimate for FY24 for RoCE is 29.8%, again behind the peers.

Net margin

EBITDA margin

Historically, V has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 53.9%, down from 53.9% in FY23. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 69.4% in the last 12 months, a decline from 69.6% in FY23.

RoIC / WACC = 4(excellent value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 4.0 in the past several years. This ratio implies a excellent shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

V reported revenue of USD 34 141mn in the last 12 months, up 2% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 3% from FY23 to USD 9.00. Market expects EPS to reach USD 9.95 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. This all contributed to continued EPS growth (positive-to-neutral). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue, EBITDA and EPS dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.

Volatility: Low

In normal market circumstances, V is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. Finally, it may be affected by inherently volatile sector.

Stress-test: Modest

In highly turbulent market conditions, V is as volatile as an index. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low. At the same time, due to inherently volatile sector, its maximum losses could be limited.

Selling difficulty: Very low

V boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.