- Visa Inc. stock presents a textbook growth at a reasonable price, or GARP, opportunity under current conditions.
- Visa’s valuation appears high on the surface, but is reasonable when factoring in its growth potential.
- A discounted FCF (free cash flow) model shows a large margin of safety.
- Finally, its consistent and sizable share buybacks further enhance the upside potential and accelerate the EPS growth.
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Visa Stock: growth at a reasonable price
The thesis of this article is quite straightforward. I will argue that A) Visa Inc. (NYSE:V) represents a good GARP opportunity (Growth At a Reasonable Price) under current conditions, and B) the opportunity is further enhanced by its sizable share repurchases.
Trading at around 28x FWD P/E, V’s valuation is not cheap by any means. However, to be detailed in the next section, once its growth potential is factored in, the valuation appears quite reasonable. The chart below shows the consensus EPS estimates for V stock in the next 5 years. As you can see, analysts expect Visa’s EPS to grow at a compound annual growth rate (“CAGR”) of 11.3% from fiscal 2024 to fiscal 2026. This translates to an EPS growth of $9.94 for fiscal 2024 to about $17.04 in fiscal 2028. As just mentioned, at its price, Visa’s forward P/E ratio based on fiscal 2024 EPS is around 28x, but it will decline quickly as EPS grows. The forward P/E ratio is expected to reach 19x by fiscal 2027 and 16x by 2028, which are both quite reasonable levels.
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