What is CU.TO's Intrinsic value?

Canadian Utilities Ltd (CU.TO) Intrinsic Value Analysis

Executive Summary

As of June 12, 2025, Canadian Utilities Ltd's estimated intrinsic value ranges from $100.94 to $26436.97 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $26436.97 +69913.2%
Dividend Discount Model (Stable) $100.94 +167.3%

Is Canadian Utilities Ltd (CU.TO) undervalued or overvalued?

With the current market price at $37.76, the stock appears to be significantly undervalued.

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 Canadian Utilities Ltd'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 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.4 0.45
Cost of equity 5.2% 6.9%
Cost of debt 4.5% 7.0%
Tax rate 22.9% 24.5%
Debt/Equity ratio 1.44 1.44
After-tax WACC 4.2% 6.0%

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: 118.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.1%
  • Long-term growth rate: 3.5%
  • Fair value: $26436.97 (69913.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 6.9% (Low) to 5.2% (High)
  • Long-term growth rate: 3.0% (Low) to 3.9% (High)
  • Fair value range: $41 to $161
  • Selected fair value: $100.94 (167.3% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $7743M
Enterprise Value $18716M
Trailing P/E 16.33
Forward P/E 0.48
Trailing EV/EBITDA 4.55
Current Dividend Yield 727.77%
Dividend Growth Rate (5Y) 0.27%
Debt-to-Equity Ratio 1.44

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% $5287.39
Dividend Discount Model (Stable) 43% $15.14
Weighted Average 100% $15150.10

Investment Conclusion

Based on our comprehensive valuation analysis, Canadian Utilities Ltd's weighted average intrinsic value is $15150.10, which is approximately 40022.1% above the current market price of $37.76.

Key investment considerations:

  • Strong projected earnings growth (321% to 374% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 0.27%

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