ModernGraham Valuation Of Visa

Nov.19.13 | About: Visa Inc. (V)

Here is a look at how Visa (NYSE:V) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

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
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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
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Earnings Per Share - Diluted

2013 (estimate) $7.73
2012 $3.16
2011 $5.16
2010 $4.01
2009 $2.04
2008 $0.58
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Earnings Per Share - Modern Graham

2013 (estimate) $5.12
2012 $3.54
2011 $3.27
2010 $2.00
2009 $0.83
2008 $0.19
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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 who 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 five years, has grown earnings over the last five years, pays a dividend, and has a strong financial condition. Enterprising Investors should do further research while keeping in mind the Seven 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.

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.