As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, Visa Inc (V).
Profile
Visa is the largest payment processor in the world. In fiscal 2022, it processed over $14 trillion in total volume. Visa operates in over 200 countries and processes transactions in over 160 currencies. Its systems are capable of processing over 65,000 transactions per second.
Recent Performance
Over the past twelve months the share price is up 25.06%.
Inputs
- Discount Rate: 8%
- Terminal Growth Rate: 2%
- WACC: 8%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 20 | 18.52 |
| 2025 | 21.6 | 18.52 |
| 2026 | 23.4 | 18.58 |
| 2027 | 25.3 | 18.60 |
| 2028 | 27.4 | 18.65 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 465.80 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 317.02 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 92.86 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 409.87 billion
Net Debt
Net Debt = Total Debt – Total Cash = 4.17 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 405.70 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $253.09
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $253.09 | $259.36 | -2.48% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $253.09 per share is lower than the current market price of $259.36. The Margin of Safety is -2.48%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.
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