Visa Inc. DCF Valuation: Is The Stock Undervalued?

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 on our screens, Visa Inc ().
 ProfileVisa 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 PerformanceOver the past twelve months the share price is up 16.78%.Source: Google FinanceInputs

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 ValueTerminal Value = FCF * (1 + g) / (r – g) = 488.75 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 332.64 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 95.01 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 427.65 billionNet DebtNet Debt = Total Debt – Total Cash = 3.96 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 423.69 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $292.26
 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%.More By This Author: