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What kind of company is $Visa(V)$ ?

Visa Inc. operates as a payments technology company worldwide. They operate a network that enables authorization, clearing, and settlement of payment transactions. To simplify it, every time you swipe your Debit or Credit Card, Visa earns a few cents. While it may just be a few cents, there is 7 billion people in the world, and we swipe our cards a few times everyday. This has made Visa into a Free Cash Flow Giant.

How are the Earnings?

Earnings has grown at a rate of 13.6% since inception. Revenue for FY2020 was 22B and earnings was 11B. That makes it have a 50% profit margin. Visa is also a free cash flow cow, as they dont have much operating expenses. FCF for FY20 was 15B.

How sustainable is the business?

Visa has a very strong Moat. It has 50% of market share, more than its competitors Mastercard (25.6%), UnionPay (19.8%) and AMEX (2.5%). Visa is dominant in its field and there has not been any competitors able to take up as much market share as Visa.

Financial Health of the company?

Visa has very low net debt of only 6.6% due to having a cash balance of $18.5 Billion on its balance sheet. V's debt is well covered by operating cash flow (72.6%). V's interest payments on its debt are well covered by EBIT (30.9x coverage). Perfect, flying colours.

Shareholder Returns?

Visa has returned 180% in the past 5 years and its dividend has increased significantly from just $0.22 in 2015 to $1.50 in 2020. Buybacks have been active. From 2015 to 2020, outstanding shares have decreased by 12% due to share buybacks.

Valuation?

With a discount rate of 6%, and a growth rate of 10%, based on the FCF of 2020, I have determine that the fair price of Visa Inc is $273, 20% undervalued to its current market price.

Final thoughts on the company:

While I do not believe this company has much room for growth, this company's fundamentals and underlying business is solid as a rock. If you seek for stable dividend and want to invest in a company that is sustainable for the next 10 years, I believe Visa should be among your options. However, if you would looking to grow ur capital for the next 10 years, then Visa may not be the right choice and it has approached its mature years.