V Stock Study (6-29-23)

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

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 637 million
     > transactions per day. Visa’s customers include nearly 15,100
     > financial institutions that issue Visa-branded products and
     > nearly 80 million merchant locations. There are over 3.3
     > billion Visa cards currently in circulation.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 10.4% and 15.9%, respectively. Lines are mostly up, straight, and parallel except for EPS dip in ’16 and sales + EPS dip in ’20. PTPM outpaces peer and industry averages while remaining relatively stable from 61.6% in ’13 to 61.9% in ’22 with a last-5-year mean of 63.7%.

Also over the past decade, ROE has been just ahead of peer and industry averages while increasing from 17.8% in ’13 to 45.3% in ’22 with a last-5-year mean of 37.8%. Debt-to-Capital has been less than peer and industry averages despite increasing from 0% in ’13-’15 to 38.7% in ’22 with a last-5-year mean of 35.9%. Interest Coverage is 35.5 and Quick Ratio is 1.1. M* gives a Standard rating for Capital Allocation and Value Line gives an A++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 11.3% YOY and 11.2% per year for ’23 and ’22-’24 (based on 33 analysts).
• YF projects YOY 11.2% and 11.0% for ’23 and ’24, respectively (35 analysts).
• Zacks projects YOY 11.0% and 10.8% for ’23 and ’24, respectively (12).
• Value Line projects 9.2% annualized growth from ’22-’27.
• CFRA projects 9.2% YOY and 9.9% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 11.2% annualized growth along with 10% per year x5 years in its analyst note.

I am forecasting just below the range at 9.0%.

With regard to EPS growth:

• CNN Business projects 14.7% YOY and 14.3% per year for ’23 and ’22-’24, respectively (based on 33 analysts), along with 5-year annualized growth of 16.5%.
• MarketWatch projects 14.9% per year for both ’22-’24 and ’22-’25 (39 analysts).
• Nasdaq.com projects 14.3% and 15.6% for ’23-’25 and ’23-’26 [14, 6, and 1 analyst(s) for ’23, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 15.3%.
• YF projects YOY 14.7% and 13.7% for ’23 and ’24, respectively (34), along with 5-year annualized growth of 14.7%.
• Zacks projects YOY 14.5% and 12.7% for ’23 and ’24, respectively (13), along with 5-year annualized growth of 15.2%.
• Value Line projects 10.6% annualized growth from ’22-’27.
• CFRA projects 14.8% for both ’23 YOY and per year from ’22-’24 along with a 3-year CAGR of 18.0%.
• M* projects long-term growth of 15.9%.

I am forecasting just below the long-term-estimate range (mean of six: 14.7%) at 10.0%. I am using ’22 EPS of $7.00/share as the initial value rather than ’23 Q2 EPS of $7.48 (annualized). FY ends Sep 30.

My Forecast High P/E is 29.0. Over the past decade, high P/E has increased from 26.5 in ’13 to 33.9 in ’22 with a last-5-year mean of 38.5. The last-5-year-mean average P/E is 32.3. I am forecasting toward the low end of the range [only ’13 and ’14 (27.3) are lower].

My Forecast Low P/E is 24.0. Over the past decade, low P/E has increased from 17.8 in ’13 to 26.2 in ’22 with a last-5-year mean of 26.2. The last-10-year median is 24.4. I am forecasting toward the lower end of range.

My Low Stock Price Forecast (LSPF) is the default value of $168.00 based on $7.00/share initial value. This is 26.3% less than the previous closing price and 3.8% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 17.4% in ’13 to 24.5% in ’20 with a last-5-year mean of 21.2%. I am forecasting below the entire range at 17.0%.

These inputs land V in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.2%.

PAR (using Forecast Average—not High—P/E) is 6.4%, which is less than I seek for a large-size stock. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 993 studies over the past 90 days (329 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 10.5%, 12.1%, 33.0, 25.1, and 21.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 28.0, which is lower than MS (29.1) and higher than mine (26.5).

MS high and low EPS are $13.10/share and $6.99/share vs. my $11.27 and $7.00. My high EPS is lower due to a lower forecast growth rate.

MS Low Stock Price Forecast of $175.00 implies a Forecast Low P/E of 25.0, which consistent with the above-stated 25.1. This is 4.2% above mine.

MOS seems healthy in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.7 while my forecast EPS growth rate gives 2.8 (upper limit generally regarded to be 1.5). Relative Value (M* data) is 0.94.

Based on Kim Butcher’s “quick and dirty DCF” method, the stock should be valued at 24 * (13.10 – [2.80 + 0.6)] = $232.80.

I would look to re-evaluate this stock under $207/share [i.e. BUY zone tops out at $207; I then want to see an acceptable projected return in order to invest].