This V Stock Forecast article was written by Milana Papadopoulou – Financial Analyst at I Know First.

Highlights:

• The stock has grown 23.69% since the beginning of 2023.
• DCF valuation suggests the stock’s incremental price is $308.98, above the current market price.
• The stock is a “Buy” in the short term and a “Strong Buy’ in the long term.

V Stock Forecast: Digital Pay Landscape

Visa Inc. has had a fantastic year of sustained growth and stable dividends. The company’s stock has seen a remarkable 23.69% growth rate, outperforming its main competitors and the S&P 500. In addition, Visa has been less volatile historically, making it a safer investment option. The company’s net income margins surpass its competitors, which is a great sign for investors. Furthermore, Visa has exceeded analysts’ expectations in 2023, highlighting its strong performance. Overall, Visa’s growth and stability make it an excellent choice for investors looking for a promising long-term investment opportunity.

V Stock Forecast: Decoding Visa Inc.

Visa Inc. is a renowned payment technology provider operating since 1958. It offers various products and services, enabling seamless payment transactions for consumers and merchants globally. Some of its popular products include VisaNet, Visa Direct, and Visa B2B Connect, which facilitate transaction processing, fund delivery, and business-to-business payments, respectively.

Visa also provides several fraud prevention services, such as Visa Secure, Visa Risk and Decision Manager, and Visa Consumer Authentication Service. These services ensure that transactions are safe and secure for consumers and merchants. It’s noteworthy that Visa is not a financial institution and doesn’t issue cards, extend credit, or set rates and fees for Visa product account holders. Instead, it provides technology and infrastructure for secure and efficient payment transactions. 

In a typical Visa transaction, a consumer uses a Visa card to purchase goods or services from a merchant. The transaction data is then sent to an acquirer, who presents it to Visa to check the account holder’s balance or credit line. Once the transaction is authorised, the issuer posts the transaction to the consumer’s account, and the acquirer pays the merchant.

Revenue Analysis

Visa has a diverse revenue stream consisting of three main segments – service, data processing, and international transactions. However, significant net revenue is dedicated to client incentives to ensure client satisfaction and growth. These incentives encourage financial institutions, merchants, and other business partners to increase payment volume, promote acceptance of Visa cards, and route merchant transactions to VisaNet and R&D.

The service segment primarily generates revenue supporting client usage of Visa payment services. In the Fiscal Year 2023, it accounted for $14.8B and was the second-largest segment.

On the other hand, data processing revenues are earned for services such as authorisation, clearing, and settlement, value-added services related to issuing, acceptance, risk and identity solutions, network access, and other maintenance and support services that facilitate client transaction and information processing. In FY 2023, data processing generated $16.08B, making it the most significant money generator and a crucial segment for the company. International Transaction revenues are earned for cross-border transaction processing and currency conversion activities. They accounted for $11.6B in 2023. 

Investor Base

Visa Inc. is highly regarded in the financial community due to its strong institutional ownership, with 86.59% of total shares held by institutional investors. Moreover, insiders own 0.04% of the company and are incentivized through stock-based plans, which align their interests with those of the shareholders. This means they are more likely to work towards the company’s success, which also benefits them.

While there have been some insider sell-offs in FY 2023, most of these were related to performance-based derivative exercises, and there have been no insider buys this year. Although this could be perceived as a bearish signal, it should not be the sole basis for stock analysis as it could be personal financial planning decisions.

Regarding institutional ownership, there have been some significant changes in recent months, which provide valuable insights. For instance, on September 30th, 2023, the previous CFO was replaced after eight years of service, which resulted in some selloffs. However, the two largest shareholders, Vanguard and Blackrock, and a few others only reduced their holdings slightly, indicating they still have faith in the company’s prospects.

Furthermore, the Virtual Shareholder meeting on November 24th, 2023, was a success, with several significant players increasing their holdings significantly, including JP Morgan, Wells Fargo, Barclays, Citigroup, and Bank of America. This indicates that the event went well, and investors are optimistic about the company’s future.

V Stock Forecast: Fintech Fusion

In recent years, Visa has differentiated itself from its competitors by focusing on enabling FinTechs, which has helped the company to grow its revenues. The management sees FinTechs as a critical factor in achieving their strategic goals of becoming the best way to pay and be paid while uplifting everyone, everywhere. To drive innovation, Visa has collaborated with its clients to test and enable the creation of new payment experiences and flows. This approach has been instrumental in the company’s success, allowing them to experiment with features before introducing them to their more traditional large banking partners. In 2023, Visa had more than 500 commercial partners in its portfolio, representing a 25% increase. This development is expected to result in accelerated growth in the future. Additionally, Visa has repeatedly emphasised that introducing new flows and improving its technology platform are the main ways to achieve development.

V Stock Forecast: A Path of Resilient Growth

Visa has maintained a steady growth trajectory in the past decade, with a consistently positive stock chart. Unlike its peers, the stock has not experienced significant volatility. Although the COVID-19 pandemic temporarily impacted the company’s quarterly financial results in April 2020, it rebounded quickly. Similarly, the company experienced a minor share dip in October 2022 but promptly recovered. Furthermore, Visa has not been involved in significant lawsuits or litigations, which speaks to its commitment to ethical business practices. Overall, Visa’s history of stable growth and resilience in the face of challenges positions it well for continued success in the future.

V Stock Forecast: Discounted Cash Flow Valuation

The Discounted Cash Flow Valuation method was used to find the target share price for Visa Inc. The incremental value of the firm was found as the sum of its discounted cashflows over the 5-year projection period and a terminal value calculated as a growing perpetuity with 3% annual growth. 

The target stock price is determined by finding the target equity value and dividing it by the number of shares outstanding. The assumption is that neither the number of shares outstanding nor the capital structure will change as the firm continues business.

The discounted cash flow model used for incremental valuation is based on several assumptions. Firstly, the expenses are taken as percentages of revenue as the average of the last three years. Secondly, the income is expected to grow at 15% a year for five years, which aligns with the average figure for the past few years. Also, the perpetuity is expected to grow at 3%, which is the projected average GDP growth of the US in the years to come. Visa is a relatively mature company, so a five-year accelerated growth projection period should be feasible for modelling purposes. 

V Stock Forecast: Incremental Firm Value  

The Weighted Average Cost of Capital is a discount factor for the cashflows. It is based on the following: the risk-free rate is the US Treasury bond yield, the market premium is the average figure for US-based companies, and the cost of debt is the weighted average interest rate on the firm’s debt. 

The Sum of the Discounted Cashflows for the next five years comes to $114,253.99(m).

The Value of the perpetuity comes to $877,177(m). Since this figure represents nearly 89% of the total incremental value of the firm, the growth assumption past the forecast horizon here is an essential factor. There have not been any indications in Visa’s management that contradict the assumption.

Based on the above data, the target share price is $308.98. This figure above the market price could indicate that the firm is undervalued relative to its prospective performance.

V Stock Forecast: What are Other Analysts Saying?

Based on the data sourced from Yahoo Finance, the analyst consensus aligns with the prognosis. The overwhelming majority of analysts placed the stock as Buy (56.41%) or Strong Buy (33.33%), with the rest (10.26%) ranking the stock as Hold.

The analysts’ views from other sources also rate the stock as a Buy/Strong Buy both for the long and short term. The data from CNN also places the stock as a buy in the 12-month forecast window. 

V Stock Forecast: Conclusion

Based on the findings of the DCF analysis, V is a stock that is undervalued. This notion resonates with the conclusions of other analysts, as mentioned above. The ongoing commitment to expansion through innovation and increases in efficiency will likely ensure sustainable growth and prosperity for the stockholders. Due to the performance projections, the stock is a “Buy/Strong Buy” depending on the investment horizon.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the V stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

To subscribe today click here.

Please note-for trading decisions use the most recent forecast.