V Stock Study (4-29-24)

Posted by Mark on May 6, 2024 at 07:22 | Last modified: April 29, 2024 10:16

I recently did a stock study on Visa Inc. (V) with a closing price of $227.96. The previous study is here.

CFRA writes:

     > Visa Inc. (V) operates the world’s largest retail electronic
     > payments network, connecting consumers, businesses, banks,
     > and governments in more than 200 countries and territories,
     > enabling them to use digital currency instead of cash and
     > checks. Visa’s core products include credit, debit, and prepaid
     > cards, and related business services. Its processing
     > infrastructure, VisaNet, processes approximately 750 million
     > transactions per day. Visa’s customers include nearly 15,000
     > financial institutions that issue Visa-branded products and
     > nearly 130 million merchant locations. There are over 4.4
     > billion Visa cards currently in circulation.

This large-size company has grown sales and EPS at annualized rates of 10.7% and 16.4%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for EPS dip in ’16 and sales + EPS dip in ’20.

Over the past decade, PTPM outpaces peer and industry averages while ranging from 53.1% in ’16 (possible outlier) to 66.6% in ’21 with a last-5-year mean of 64.2%. ROE is just ahead of peer and industry averages while increasing from 19.4% (’14) to 43.9% (’23) with a last-5-year mean of 39.6%. Debt-to-Capital is less than peer and industry averages despite increasing from zero (’14-’15) to 34.6% (’23) with a last-5-year mean of 36.3%.

Interest Coverage is 36.2 and Quick Ratio is 1.0. M* categorizes the company “Wide” for economic moat and gives a “Standard” rating for Capital Allocation. Value Line gives an A++ rating for Financial Strength.

With regard to sales:

• YF projects YOY 20.4% and 10.2% for ’24 and ’25, respectively (based on 35 analysts).
• Zacks projects YOY 9.4% and 9.5% for ’24 and ’25, respectively (11 analysts).
• Value Line projects 9.8% annualized growth from ’23-’28.
• CFRA projects 10.9% YOY and 10.7% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year ACE of 13.9% annualized growth.

I am forecasting below both long-term estimates at 9.0% per year.

With regard to EPS:

• MarketWatch projects 13.5% and 14.0% per year for ’23-’25 and ’23-’26, respectively (based on 40 analysts).
• Nasdaq.com projects 13.2% and 13.7% for ’24-’26 and ’24-’27, respectively [13/6/1 analyst(s) for ’24/’26/’27].
• Seeking Alpha projects 4-year annualized growth of 13.1%.
• YF projects YOY 24.0% and 12.2% for ’24 and ’25, respectively (35), along with 5-year annualized growth of 13.4%.
• Zacks projects YOY 12.8% and 10.8% for ’24 and ’25, respectively (13), along with 5-year annualized growth of 14.7%.
• Value Line projects 11.1% annualized growth from ’23-’28.
• CFRA projects 16.0% YOY and 14.8% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term annualized growth of 16.3%.

My 11.0% forecast is just below the long-term-estimate range (mean of five: 13.7%). I am using ’23 EPS of $8.28/share as the initial value rather than 2023 Q2 EPS of $8.95 (annualized). FY ends Sep 30.

My Forecast High P/E is 29.0. Over the past decade, high P/E ranges from 27.3 in ’14 to 44.9 in ’21 with a last-5-year mean of 37.7 and a last-5-year-mean average P/E of 31.7. I am forecasting toward the low end of the range [only ’13 is less].

My Forecast Low P/E is 24.0. Over the past decade, low P/E ranges from 18.9 in ’15 to 31.8 in ’21 with a last-5-year mean of 25.6. The last-10-year median is 24.4. I am forecasting in the lower part of the range.

My Low Stock Price Forecast (LSPF) of $198.70 is default based on $8.28/share initial value. This is 27.6% less than the previous closing price and 8.1% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 18.6% in ’14-’15 to 24.5% in ’20 with a last-5-year mean of 21.8%. I am forecasting below the range at 18.0%.

These inputs land V in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.7%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 6.8%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 577 studies over the past 90 days (my study and 251 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 10.0%, 12.4%, 33.0, 24.8, and 21.7%, respectively. I am lower across the board. Value Line projects an average annual P/E of 28.0, which is lower than MS (28.9) and higher than mine (26.5).

MS high / low EPS are $16.45/ $8.49 versus my $13.95 / $8.28 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is in the middle at $14.85.

MS LSPF of $205.30 implies a Forecast Low P/E of 24.2: less than the above-stated 24.8. MS LSPF is 2.5% less than the default $8.49/share * 24.8 = $210.55 resulting in more conservative zoning. MS LSPF is also 3.2% less than mine.

TAR (over 15.0% preferred) is much lower than MS 13.6%. MOS is robust in the current study.

With regard to valuation, PEG is 1.9 and 2.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fairly valued at 1.0.

From reading analyst reports and seeing presentations from the BI community, Visa may be a COST-like juggernaut. Back-up-the-truck opportunities to purchase stock may be slim to none. Should the consistency remain, it wouldn’t hurt to buy, hold, and watch the investment grow. Personally, I will wait until U/D gets closer to 3.0 with the realization it may never get there.

V is a BUY under $250/share. With a forecast high price ~$327, my TAR criterion will be met when the stock drops to ~$164.