Stock Analysis on Net

Visa Inc. (NYSE:V)

Present Value of Free Cash Flow to Equity (FCFE)

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Intrinsic Stock Value (Valuation Summary)

Visa Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 11.27%
01 FCFE0 11,522
1 FCFE1 13,990 = 11,522 × (1 + 21.42%) 12,572
2 FCFE2 16,535 = 13,990 × (1 + 18.19%) 13,354
3 FCFE3 19,009 = 16,535 × (1 + 14.96%) 13,797
4 FCFE4 21,240 = 19,009 × (1 + 11.74%) 13,854
5 FCFE5 23,049 = 21,240 × (1 + 8.51%) 13,510
5 Terminal value (TV5) 905,463 = 23,049 × (1 + 8.51%) ÷ (11.27%8.51%) 530,753
Intrinsic value of Visa Inc. common stock 597,840
 
Intrinsic value of Visa Inc. common stock (per share) $283.53
Current share price $214.67

Based on: 10-K (reporting date: 2021-09-30).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.13%
Expected rate of return on market portfolio2 E(RM) 11.52%
Systematic risk of Visa Inc. common stock βV 0.97
 
Required rate of return on Visa Inc. common stock3 rV 11.27%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rV = RF + βV [E(RM) – RF]
= 2.13% + 0.97 [11.52%2.13%]
= 11.27%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Visa Inc., PRAT model

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Average Sep 30, 2021 Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016
Selected Financial Data (US$ in millions)
Cash dividends declared and paid 2,798  2,664  2,269  1,918  1,579  1,350 
Net income 12,311  10,866  12,080  10,301  6,699  5,991 
Net revenues 24,105  21,846  22,977  20,609  18,358  15,082 
Total assets 82,896  80,919  72,574  69,225  67,977  64,035 
Equity 37,589  36,210  34,684  34,006  32,760  32,912 
Financial Ratios
Retention rate1 0.77 0.75 0.81 0.81 0.76 0.77
Profit margin2 51.07% 49.74% 52.57% 49.98% 36.49% 39.72%
Asset turnover3 0.29 0.27 0.32 0.30 0.27 0.24
Financial leverage4 2.21 2.23 2.09 2.04 2.08 1.95
Averages
Retention rate 0.78
Profit margin 46.60%
Asset turnover 0.28
Financial leverage 2.10
 
FCFE growth rate (g)5 21.42%

Based on: 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30).

2021 Calculations

1 Retention rate = (Net income – Cash dividends declared and paid) ÷ Net income
= (12,3112,798) ÷ 12,311
= 0.77

2 Profit margin = 100 × Net income ÷ Net revenues
= 100 × 12,311 ÷ 24,105
= 51.07%

3 Asset turnover = Net revenues ÷ Total assets
= 24,105 ÷ 82,896
= 0.29

4 Financial leverage = Total assets ÷ Equity
= 82,896 ÷ 37,589
= 2.21

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.78 × 46.60% × 0.28 × 2.10
= 21.42%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (452,642 × 11.27%11,522) ÷ (452,642 + 11,522)
= 8.51%

where:
Equity market value0 = current market value of Visa Inc. common stock (US$ in millions)
FCFE0 = the last year Visa Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Visa Inc. common stock


FCFE growth rate (g) forecast

Visa Inc., H-model

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Year Value gt
1 g1 21.42%
2 g2 18.19%
3 g3 14.96%
4 g4 11.74%
5 and thereafter g5 8.51%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 21.42% + (8.51%21.42%) × (2 – 1) ÷ (5 – 1)
= 18.19%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 21.42% + (8.51%21.42%) × (3 – 1) ÷ (5 – 1)
= 14.96%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 21.42% + (8.51%21.42%) × (4 – 1) ÷ (5 – 1)
= 11.74%