What is ECOL's Intrinsic value?

US Ecology Inc (ECOL) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, US Ecology Inc's estimated intrinsic value ranges from $2.86 to $32.69 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $32.69 -31.9%
Discounted Cash Flow (5Y) $21.70 -54.8%
Dividend Discount Model (Multi-Stage) $23.05 -52.0%
Earnings Power Value $2.86 -94.0%

Is US Ecology Inc (ECOL) undervalued or overvalued?

With the current market price at $47.99, 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 US Ecology 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 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 1.13 1.23
Cost of equity 8.0% 10.6%
Cost of debt 4.0% 12.6%
Tax rate 24.6% 31.2%
Debt/Equity ratio 0.5 0.5
After-tax WACC 6.3% 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: 8.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $988 (FY12-2021) to $1,767 (FY12-2031)
  • Net profit margin expansion from 1% to 6%
  • Capital expenditures maintained at approximately 7% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $22 $1,360M 84.7%
10-Year Growth $33 $1,704M 70.3%
5-Year EBITDA $41 $1,274M 83.7%
10-Year EBITDA $51 $1,590M 68.2%

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: 9.3%
  • Long-term growth rate: 3.5%
  • Fair value: $23.05 (-52.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.6% (Low) to 8.0% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $(1) to $(2)
  • Selected fair value: $-1.60 (-103.3% 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 $59M
Discount Rate (WACC) 10.0% - 6.3%
Enterprise Value $596M - $942M
Net Debt $679M
Equity Value $(83)M - $262M
Outstanding Shares 31M
Fair Value $(3) - $8
Selected Fair Value $2.86

Key Financial Metrics

Metric Value
Market Capitalization $1504M
Enterprise Value $1504M
Trailing P/E 0.00
Forward P/E 77.19
Trailing EV/EBITDA 7.95
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -100.00%
Debt-to-Equity Ratio 0.50

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% $9.81
Discounted Cash Flow (5Y) 29% $5.43
Dividend Discount Model (Multi-Stage) 24% $4.61
Earnings Power Value 12% $0.29
Weighted Average 100% $23.68

Investment Conclusion

Based on our comprehensive valuation analysis, US Ecology Inc's weighted average intrinsic value is $23.68, which is approximately 50.7% below the current market price of $47.99.

Key investment considerations:

  • Strong projected earnings growth (1% to 6% margin)
  • Consistent cash flow generation

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