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 is not currently in our screens, Visa Inc (V).
Profile
Visa is the largest payment processor in the world. In fiscal 2023, it processed almost $15 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 16.78%.
Source: Google Finance
Inputs
- Discount Rate: 8%
- Terminal Growth Rate: 2%
- WACC: 8%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 19.92 | 18.44 |
| 2025 | 21.84 | 18.72 |
| 2026 | 23.93 | 19.00 |
| 2027 | 26.23 | 19.28 |
| 2028 | 28.75 | 19.57 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 488.75 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 332.64 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 95.01 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 427.65 billion
Net Debt
Net Debt = Total Debt – Total Cash = 3.96 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 423.69 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $208.82
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $208.82 | $273.79 | -31.12% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $208.82 share is lower than the current market price of $273.79. The Margin of Safety is -31.12%.
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6 Comments on “Visa Inc (V) DCF Valuation: Is The Stock Undervalued?”
You have both 208.82 and 292.26 as the per share DCF value, which is which?
Thank you. The DCF value is $208.82.
Hello,
In your DCF formula you conclude that the DCF valuation is: $292.26 per share. In your Conclusion Table you report the DCF Value to be $208.82 per share.
If I understand your methodology correctly, these two values should be the same.
Thank you. The DCF value is $208.82.
Thanks for the DCF valuation of VISA. It is really useful. Can you please tell me the data sources used (Discount Rate, FCFs, net debt, etc) for the valuation? That would really help me.
Thanks Severin. All valuations are subjective. The balance sheet financials I use are from Morningstar. The discount rate, terminal growth rate, projected FCFs, and WACC are all based on my own assumptions. I pop them all into a spreadsheet I’ve created and it generates the results.