Valuation analysis for Visa Inc (NYSE:V)

October 21, 2014, 13:19 pm ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Is the Dow Jones industrial average fairly valued at this time?  Although Stock Traders Daily has already offered this analysis to its clients, this public review is intended to help make that determination clearer for the general investment community as well.  This is one of 30 Dow components reviewed recently by Stock Traders Daily.

There are some reasons to be concerned about investments in Visa Inc (NYSE:V) at this time, but on a fundamental valuation basis the stock does not appear to be significantly overvalued given its recent growth rates.  Analysts also seem to be expecting growth going forward to be similar to recent results, suggesting that the current valuation metrics should hold.

According to our observations of yearly trailing 12 month EPS growth, Visa has been growing at about 17%.  This growth rate is solid, but not as strong as we have seen in the past.

In addition, and maybe something that is concerning investors at this time, the most recent result shows revenue growth that is virtually nonexistent and a moderate pullback in EPS.

However, expectations remain solid, and although the company has been growing quite nicely, the stock has also experienced multiple contractions since December, 2013.  The PE multiple for Visa was near 30 back then, while it now rests at about 22 times earnings.

The interesting part is that when we compare the PE multiple to the growth rate and the expected growth rate for Visa, the resulting peg ratio is relatively attractive.  That means, given its growth rate, the valuation at these current levels is attractive, but that also assumes growth is sustained.

Technical take:

According to our real time trading report for Visa, the stock tested longer-term support last week and it is already in the process of increasing back towards longer term resistance levels again.  So long as support remains intact we expect the stock to continue to progress higher towards longer term resistance.  However, the stock has already increased quite a bit from support so there are no immediate buy signals, we prefer to buy at support, but still we do expect higher levels.

Summary:

Valuation for Visa looks fine.  The PE multiple is relatively attractive given the expected and past growth rates, and the current peg ratio is as well, but there are no buy signals that because the stock has already begun to bounce from tests of longer term support, so although our combined analysis tells us to expect higher levels and tests of longer-term resistance, we do not condone buying stocks in the middle of trading channels and therefore we would not be buyers of Visa.  Anyone who bought the stock at longer term support should continue to hold with an upside target of longer-term resistance while using support as a risk control (if it breaks support get out of the position).

Support and Resistance Plot Chart for

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