What is ACA's Intrinsic value?

Arcosa Inc (ACA) Intrinsic Value Analysis

Executive Summary

As of June 12, 2025, Arcosa Inc's estimated intrinsic value ranges from $4.72 to $96.39 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $96.39 +7.9%
Discounted Cash Flow (5Y) $73.00 -18.2%
Dividend Discount Model (Multi-Stage) $52.35 -41.4%
Dividend Discount Model (Stable) $18.50 -79.3%
Earnings Power Value $4.72 -94.7%

Is Arcosa Inc (ACA) undervalued or overvalued?

With the current market price at $89.30, the stock appears to be significantly overvalued.

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 Arcosa Inc'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 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 1.23 1.32
Cost of equity 9.5% 12.2%
Cost of debt 4.0% 5.3%
Tax rate 20.9% 22.5%
Debt/Equity ratio 0.39 0.39
After-tax WACC 7.8% 10.0%

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: 8.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,570 (FY12-2024) to $5,351 (FY12-2034)
  • Net profit margin expansion from 4% to 10%
  • Capital expenditures maintained at approximately 6% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $73 $5,082M 78.9%
10-Year Growth $96 $6,224M 62.3%
5-Year EBITDA $119 $7,348M 85.4%
10-Year EBITDA $145 $8,583M 72.7%

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: 12.5%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.9%
  • Long-term growth rate: 3.0%
  • Fair value: $52.35 (-41.4% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.2% (Low) to 9.5% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $11 to $26
  • Selected fair value: $18.50 (-79.3% 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 $153M
Discount Rate (WACC) 10.0% - 7.8%
Enterprise Value $1,528M - $1,969M
Net Debt $1,518M
Equity Value $10M - $451M
Outstanding Shares 49M
Fair Value $0 - $9
Selected Fair Value $4.72

Key Financial Metrics

Metric Value
Market Capitalization $4360M
Enterprise Value $5878M
Trailing P/E 55.82
Forward P/E 29.13
Trailing EV/EBITDA 13.95
Current Dividend Yield 22.42%
Dividend Growth Rate (5Y) -0.26%
Debt-to-Equity Ratio 0.39

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) 30% $28.92
Discounted Cash Flow (5Y) 25% $18.25
Dividend Discount Model (Multi-Stage) 20% $10.47
Dividend Discount Model (Stable) 15% $2.77
Earnings Power Value 10% $0.47
Weighted Average 100% $60.88

Investment Conclusion

Based on our comprehensive valuation analysis, Arcosa Inc's weighted average intrinsic value is $60.88, which is approximately 31.8% below the current market price of $89.30.

Key investment considerations:

  • Strong projected earnings growth (4% to 10% margin)
  • Consistent cash flow generation

Given these factors, we believe Arcosa Inc is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.