What is 1COV.DE's Intrinsic value?

Covestro AG (1COV.DE) Intrinsic Value Analysis

Executive Summary

As of June 19, 2025, Covestro AG's estimated intrinsic value ranges from $3.97 to $74.99 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $74.99 +25.0%
Discounted Cash Flow (5Y) $56.87 -5.2%
Dividend Discount Model (Multi-Stage) $48.72 -18.8%
Earnings Power Value $3.97 -93.4%

Is Covestro AG (1COV.DE) undervalued or overvalued?

With the current market price at $60.00, the stock appears to be fairly valued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Covestro AG's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 2.8% 3.3%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.75 0.98
Cost of equity 6.6% 9.8%
Cost of debt 4.2% 7.0%
Tax rate 30.0% 30.0%
Debt/Equity ratio 0.27 0.27
After-tax WACC 5.8% 8.7%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $14,179 (FY12-2024) to $18,676 (FY12-2034)
  • Net profit margin expansion from -2% to 6%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $57 $13,713M 84.1%
10-Year Growth $75 $17,138M 70.5%
5-Year EBITDA $43 $11,088M 80.3%
10-Year EBITDA $55 $13,331M 62.1%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.2%
  • Long-term growth rate: 3.0%
  • Fair value: $48.72 (-18.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.8% (Low) to 6.6% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $(19) to $(71)
  • Selected fair value: $-44.70 (-174.5% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $260M
Discount Rate (WACC) 8.7% - 5.8%
Enterprise Value $2,978M - $4,453M
Net Debt $2,964M
Equity Value $14M - $1,489M
Outstanding Shares 189M
Fair Value $0 - $8
Selected Fair Value $3.97

Key Financial Metrics

Metric Value
Market Capitalization $11340M
Enterprise Value $14304M
Trailing P/E 0.00
Forward P/E 76.76
Trailing EV/EBITDA 6.60
Current Dividend Yield 0.91%
Dividend Growth Rate (5Y) -74.06%
Debt-to-Equity Ratio 0.27

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 35% $22.50
Discounted Cash Flow (5Y) 29% $14.22
Dividend Discount Model (Multi-Stage) 24% $9.74
Earnings Power Value 12% $0.40
Weighted Average 100% $55.13

Investment Conclusion

Based on our comprehensive valuation analysis, Covestro AG's weighted average intrinsic value is $55.13, which is approximately 8.1% below the current market price of $60.00.

Key investment considerations:

  • Strong projected earnings growth (-2% to 6% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.27)

Given these factors, we believe Covestro AG is currently fairly valued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.