What is CSTR's Intrinsic value?

CapStar Financial Holdings Inc (CSTR) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, CapStar Financial Holdings Inc's estimated intrinsic value ranges from $16.34 to $18.98 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $16.34 -18.7%
Dividend Discount Model (Stable) $18.98 -5.6%

Is CapStar Financial Holdings Inc (CSTR) undervalued or overvalued?

With the current market price at $20.10, the stock appears to be moderately 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 CapStar Financial Holdings Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

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 0.85 0.94
Cost of equity 7.8% 10.1%
Cost of debt 5.0% 5.0%
Tax rate 19.9% 20.3%
Debt/Equity ratio 0.07 0.07
After-tax WACC 7.5% 9.7%

Valuation Methods

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: 30.5%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.9%
  • Long-term growth rate: 2.0%
  • Fair value: $16.34 (-18.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.1% (Low) to 7.8% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $11 to $27
  • Selected fair value: $18.98 (-5.6% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $418M
Enterprise Value $448M
Trailing P/E 14.03
Forward P/E 13.76
Trailing EV/EBITDA 0.00
Current Dividend Yield 217.34%
Dividend Growth Rate (5Y) 26.92%
Debt-to-Equity Ratio 0.07

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
Dividend Discount Model (Multi-Stage) 57% $3.27
Dividend Discount Model (Stable) 43% $2.85
Weighted Average 100% $17.47

Investment Conclusion

Based on our comprehensive valuation analysis, CapStar Financial Holdings Inc's weighted average intrinsic value is $17.47, which is approximately 13.1% below the current market price of $20.10.

Key investment considerations:

  • Conservative capital structure (Debt/Equity of 0.07)
  • Historical dividend growth of 26.92%

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