Multiples-based and Alternate Valuation Models

Visa's dividend discount model shown below, uses the last dividend taken from April 19th 2021 on Factset as well as the cost of equity taken from WACC evaluation. The proforma growth rate was also found using the 2020-2025 averages from FactSet and Valueline, as well as a 5% long term growth rate. This method values Visa's stock at $108.48. This valuation is significantly lower than the stock price and the other valuations from the ROPI and Market Multiples method. Therefore, I concluded this model, is an outlier and should not be included in the final stock price valuation of Visa.

Figure1: Visa Dividend Discount Model

The second valuation below uses the market competitors and their ratios to calculate stock price. The competitors I used were all the from the transaction processing sector and include PayPal, Mastercard, Block, and Jack Henry. I used both Valueline and Factset to find metrics on these companies. This valuation method valued the stock price at $187.28 which is 27 dollars under the current stock price. However, $187 is in an appropriate range of the other methods, and is used to find the final stock price of Visa.

Figure 2+3: Visa's Market Multiples

The last method I used to evaluate Visa's stock price was residual operating income. I found the net operating assets from either the balance sheet or cash flow analysis to calculate the average ROPI from the last 5 years. Then by using the proforma growth rate I calculated the free cash flow valuation for the ROPI and the terminal value. Concluding, in the final section below I was able to find the equity value of Visa and then used the outstanding share amount from Factset to value Visa at $415.13. This value is way too high compared to the current stock price and the other values generated. Concluding, I will not be including this in the final valuation.

Figure 4 +5: Visa's ROPI

Excel:

Sources:

https://research.valueline.com/research#sec=company&sym=V

https://my.apps.factset.com/navigator/company-security/snapshot/V-US