ModernGraham Quarterly Valuation Of Visa Inc.

Feb.17.14 | About: Visa Inc. (V)

Visa (NYSE:V) is a company that has permeated nearly every location on the planet. One can travel almost anywhere and be able to use a Visa card as payment for goods and services. This is an excellent quality for a company, especially one that's product is a payment system. However, Intelligent Investors must keep in mind that investment analysis requires a review of the financial statements to determine the company's risk level and intrinsic value. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Visa fares in the ModernGraham valuation model.

V Chart

V data by YCharts

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

Key Data:

Recent Price $226.00
MG Value $251.97
MG Opinion Fairly Valued
Value Based on 3% Growth $94.90
Value Based on 0% Growth $55.63
Market Implied Growth Rate 13.02%
Net Current Asset Value (NCAV) -$2.32
PEmg 34.53
Current Ratio 1.77
PB Ratio 5.30
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Balance Sheet - 12/31/2013

Current Assets $7,765,000,000
Current Liabilities $4,385,000,000
Total Debt $0
Total Assets $36,248,000,000
Intangible Assets $23,015,000,000
Total Liabilities $9,234,000,000
Outstanding Shares 634,050,000
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Earnings Per Share

2014 (estimate) $8.80
2013 $7.59
2012 $3.16
2011 $5.16
2010 $4.01
2009 $2.04
2008 $0.58
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Earnings Per Share - ModernGraham

2014 (estimate) $6.54
2013 $5.08
2012 $3.54
2011 $3.27
2010 $2.00
2009 $0.83
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Dividend History

V Dividend Chart

V Dividend data by YCharts


Visa is not suitable for the Defensive Investor because it has not had a long enough history as a publicly traded company. The Defensive Investor requires ten years of publicly traded status before it may be suitable, as that helps ensure the reliability of the financial data. The Enterprising Investor is not as strict, however, and Visa passes all of the requirements for this investor type. As a result, value investors seeking to follow the Enterprising Investor portion of the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company. Such research might include a review of ModernGraham's analysis of MasterCard (NYSE:MA). From a valuation perspective, the company has grown its EPSmg (normalized earnings) from $0.83 in 2009 to an estimated $6.54 for 2014. This is a solid level of growth that definitely supports the market's implied estimate for growth of 13.02%, but the ModernGraham valuation model returns an intrinsic value estimate within a margin of safety as the price. As a result, the company appears to be fairly valued at the current time, but not undervalued.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Visa Inc.? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Visa Inc. (V) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.