Stock Analysis on Net
Stock Analysis on Net

Visa Inc. (NYSE:V)

This company has been moved to the archive! The financial data has not been updated since April 27, 2023.

Present Value of Free Cash Flow to the Firm (FCFF)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Visa Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.54%
01 FCFF0 18,377
1 FCFF1 21,297 = 18,377 × (1 + 15.89%) 18,925
2 FCFF2 24,287 = 21,297 × (1 + 14.04%) 19,177
3 FCFF3 27,244 = 24,287 × (1 + 12.18%) 19,116
4 FCFF4 30,056 = 27,244 × (1 + 10.32%) 18,739
5 FCFF5 32,600 = 30,056 × (1 + 8.46%) 18,061
5 Terminal value (TV5) 867,776 = 32,600 × (1 + 8.46%) ÷ (12.54% – 8.46%) 480,761
Intrinsic value of Visa Inc. capital 574,778
Less: Debt (fair value) 19,900
Intrinsic value of Visa Inc. common stock 554,878
 
Intrinsic value of Visa Inc. common stock (per share) $270.79
Current share price $229.01

Based on: 10-K (reporting date: 2022-09-30).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Visa Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 469,275 0.96 12.97%
Debt (fair value) 19,900 0.04 2.31% = 2.90% × (1 – 20.20%)

Based on: 10-K (reporting date: 2022-09-30).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,049,144,694 × $229.01
= $469,274,626,372.94

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (18.00% + 23.00% + 21.00% + 19.00% + 20.00% + 43.00%) ÷ 6
= 20.20%

WACC = 12.54%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Visa Inc., PRAT model

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Average Sep 30, 2022 Sep 30, 2021 Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017
Selected Financial Data (US$ in millions)
Interest expense 538 513 516 533 612 563
Net income 14,957 12,311 10,866 12,080 10,301 6,699
 
Effective income tax rate (EITR)1 18.00% 23.00% 21.00% 19.00% 20.00% 43.00%
 
Interest expense, after tax2 441 395 408 432 490 321
Add: Cash dividends declared and paid 3,203 2,798 2,664 2,269 1,918 1,579
Interest expense (after tax) and dividends 3,644 3,193 3,072 2,701 2,408 1,900
 
EBIT(1 – EITR)3 15,398 12,706 11,274 12,512 10,791 7,020
 
Current maturities of debt 2,250 999 2,999 — — 1,749
Long-term debt, excluding current maturities 20,200 19,978 21,071 16,729 16,630 16,618
Equity 35,581 37,589 36,210 34,684 34,006 32,760
Total capital 58,031 58,566 60,280 51,413 50,636 51,127
Financial Ratios
Retention rate (RR)4 0.76 0.75 0.73 0.78 0.78 0.73
Return on invested capital (ROIC)5 26.53% 21.70% 18.70% 24.34% 21.31% 13.73%
Averages
RR 0.75
ROIC 21.05%
 
FCFF growth rate (g)6 15.89%

Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 538 × (1 – 18.00%)
= 441

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 14,957 + 441
= 15,398

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [15,398 – 3,644] ÷ 15,398
= 0.76

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 15,398 ÷ 58,031
= 26.53%

6 g = RR × ROIC
= 0.75 × 21.05%
= 15.89%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (489,175 × 12.54% – 18,377) ÷ (489,175 + 18,377)
= 8.46%

where:

Total capital, fair value0 = current fair value of Visa Inc. debt and equity (US$ in millions)
FCFF0 = the last year Visa Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Visa Inc. capital

FCFF growth rate (g) forecast

Visa Inc., H-model

Microsoft Excel
Year Value gt
1 g1 15.89%
2 g2 14.04%
3 g3 12.18%
4 g4 10.32%
5 and thereafter g5 8.46%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 15.89% + (8.46% – 15.89%) × (2 – 1) ÷ (5 – 1)
= 14.04%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 15.89% + (8.46% – 15.89%) × (3 – 1) ÷ (5 – 1)
= 12.18%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 15.89% + (8.46% – 15.89%) × (4 – 1) ÷ (5 – 1)
= 10.32%