What is DLX's Intrinsic value?

Deluxe Corp (DLX) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Deluxe Corp's estimated intrinsic value ranges from $9.76 to $32.47 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $32.47 +132.6%
Discounted Cash Flow (5Y) $26.91 +92.8%
Dividend Discount Model (Multi-Stage) $10.25 -26.6%
Dividend Discount Model (Stable) $9.76 -30.1%
Earnings Power Value $30.73 +120.1%

Is Deluxe Corp (DLX) undervalued or overvalued?

With the current market price at $13.96, 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 Deluxe Corp'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 1.27 1.52
Cost of equity 9.7% 13.4%
Cost of debt 6.2% 9.1%
Tax rate 32.2% 33.5%
Debt/Equity ratio 2.15 2.15
After-tax WACC 6.0% 8.4%

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: 7.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,122 (FY12-2024) to $2,665 (FY12-2034)
  • Net profit margin expansion from 2% to 2%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $27 $2,666M 73.3%
10-Year Growth $32 $2,914M 54.6%
5-Year EBITDA $11 $1,940M 63.4%
10-Year EBITDA $19 $2,313M 42.8%

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: 97.7%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 11.5%
  • Long-term growth rate: 0.5%
  • Fair value: $10.25 (-26.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 13.4% (Low) to 9.7% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $7 to $13
  • Selected fair value: $9.76 (-30.1% 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 $197M
Discount Rate (WACC) 8.4% - 6.0%
Enterprise Value $2,355M - $3,317M
Net Debt $1,462M
Equity Value $893M - $1,855M
Outstanding Shares 45M
Fair Value $20 - $41
Selected Fair Value $30.73

Key Financial Metrics

Metric Value
Market Capitalization $624M
Enterprise Value $2087M
Trailing P/E 11.15
Forward P/E 12.12
Trailing EV/EBITDA 5.35
Current Dividend Yield 767.30%
Dividend Growth Rate (5Y) 1.66%
Debt-to-Equity Ratio 2.15

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% $9.74
Discounted Cash Flow (5Y) 25% $6.73
Dividend Discount Model (Multi-Stage) 20% $2.05
Dividend Discount Model (Stable) 15% $1.46
Earnings Power Value 10% $3.07
Weighted Average 100% $23.06

Investment Conclusion

Based on our comprehensive valuation analysis, Deluxe Corp's weighted average intrinsic value is $23.06, which is approximately 65.2% above the current market price of $13.96.

Key investment considerations:

  • Strong projected earnings growth (2% to 2% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 1.66%

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