Visa Inc: estimating the stock price by the net profit per share approach and the ROE with the retained earnings approach.
Hi,
I will try to value Visa Inc by using different techniques so that we can see the value which can be attached to Visa Inc.
1/ By using the net profit per share approach (yes I know, it is far from being a perfect approach but it will enable us to have an idea!!), the stock price would be 123,6 dollars in 2012 and 140,3 dollars in 2013. To get to this estimate I used the following elements:
· an increase in sales of 13% in 2012 and 12,4% in 2013 (these numbers are conservative compared to the 13,9% increase in 2011 and the 16,7% increase in 2010);
· a net profit margin of 39,7% in 2012 and 2013 ( I am taking a prudent approach by taking the opinion that this ratio will stay stable compared to 2011 even though the last four years have seen a regular increase);
· a number of outstanding shares of 700 million class A shares in 2012 and of 697 million shares in 2012 ( Visa has a history of buying back shares and I think that they will continue this very good habit of theirs!),
· for the PER ratio I took the stance that it will be at 21 (Visa Inc has known a regular growth, is a clear leader, has a great net profit margin and is announcing very good partnerships).
2/ By using the ROE and the percentage of earnings retained by Visa inc, I get an estimate of a price share of 309,6 dollars in 2021. To get this estimate I used the following data:
· an average ROE of 13,5% (average of the last two years) ,
· the average retained earnings kept by Visa represent 87,85% of the earnings; the shareholder equity per share is 37,4 dollars in 2011.
· By using the average ROE on retained earnings (11,86%) on a 10 year period, we would have a shareholder equity value of 114,8 dollars in 2021.
· On this last amount, we apply the average ROE (13,5%) which gives us a net profit per share of 15,5 dollars per share in 2021.
· And finally by applying a conservative PER of 20 we get a 309,6 dollars per share in 2021. Of course, this approach is a long term estimate but it does give us an idea of the value of Visa Inc which really has a great competitive advantage. This gives an annual rate of return of 10,41% (if buying the stock at 115 dollars) which isn’t bad at all but is not perfect!
In my next post, I will continue to estimate the value of Visa Inc by using other methods.
I hope that you enjoyed the post! Don’t hesitate to comment in English or in French!
Important note: I have 113 shares of Visa Inc.
Cheers
Jeremy
Here are my other posts on Visa:
Some financial data and analysis of Visa Inc
Visa inc: analysis of the number of outstanding shares