Subscribe to Stock Researching via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Archives

Visa Inc: DCF Calculation Visa Inc. $V

image002As stated in my last article recently I picked up shares in Visa Inc. Yesterday I published Visa’s Cost of Debt, Cost of Equity and latest WACC. Based on those figures I have calculated a price target.

Valuation

In the section below, I will use the Discounted Cash Flow valuation model to estimate the current value of Visa’s shares as well as using the model to estimate.
e future valuations.

I believe using the Discounted Cash Flow valuation model for Visa to be fair because DCF analysis can help one see where the company’s value is coming from and can generate an opinion based on that.

FY2017 FY2017 FY2018
FY 2016 TTM 2% growth EBITDA 5% growth EBITDA Analyst Estimates FY 2018
Operating Income 10,647
Taxes $2,021
Unlevered Net income $8,626.00
D&A $502
EBITDA $11,149.00 $11,371.98 $11,706.45 $13,924.00
Free Cash Flow $5,051.00 $5,051.00 $5,051.00 $5,051.00
WACC 8.52% 8.52% 8.52% 8.52%
Terminal Value 16.3X EBITDA $181,728.70 $185,363.27 $190,815.14 $226,961.20
Sum of Parts $186,779.70 $190,414.27 $195,866.14 $232,012.20
Net Present Value $172,115.46 $175,464.68 $180,488.51 $213,796.72
Total Debt $15,882.00 $15,882.00 $15,882.00 $15,882.00
Cash and Cash Equivalents $5,619.00 $5,619.00 $5,619.00 $5,619.00
Net Debt $10,263.00 $10,263.00 $10,263.00 $10,263.00
Equity Value $161,852.46 $165,201.68 $170,225.51 $203,533.72
Shares Outstanding 1870 1870 1870 1870
Price Value $86.55 $88.34 $91.03 $108.84
Current Price $75.72 $75.72 $75.72 $75.72
Difference 14.31% 16.67% 20.22% 43.74%

Even though there are variations in calculating this formula, this model is based off of a terminal value of $181,728.70B and a WACC of 8.52%. The terminal value $181,728.70B is based off of the company trading at 16.3X EBITDA. I believe this to be a fair estimation as currently the company is trading at 16.3X EBITDA. Using these valuations, I have concluded Visa’s value to be $86.55 per share.

As of December 3rd, Visa’s stock was trading at $75.72 – using the Discount Cash Flow Formula above, this indicates the stock is trading at a 14.31% discount to today’s price. Looking forward, as earnings are expected to continue their upward trend, I have calculated a long-term target in the $100.00+ range.

Risks

Over the past number of years Visa has been on been on a tear. Having stated that the company has a few headwinds moving forward. One of the biggest risks facing Visa could be over regulation by government. Government hurdles will have a huge impact on their global growth plan as well as regulatory changes could have a large effect in the areas that the company currently resides. This is one aspect of the company to keep an eye on.

Conclusion

Based on the results above,  at current levels using the Discount Cash Flow Formula, I have calculated that Visa is currently under fair value. It is my opinion that the recent pullback has provided an excellent opportunity to own shares in Visa Inc.

Leave a Reply