What is FOE's Intrinsic value?

Ferro Corp (FOE) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, Ferro Corp's estimated intrinsic value ranges from $8.31 to $21.48 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $21.48 -2.4%
Discounted Cash Flow (5Y) $20.91 -5.0%
Dividend Discount Model (Multi-Stage) $12.10 -45.0%
Dividend Discount Model (Stable) $17.60 -20.0%
Earnings Power Value $8.31 -62.2%

Is Ferro Corp (FOE) undervalued or overvalued?

With the current market price at $22.01, 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 Ferro 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 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 0.99 1.21
Cost of equity 7.4% 10.5%
Cost of debt 4.0% 4.5%
Tax rate 27.9% 33.8%
Debt/Equity ratio 0.14 0.14
After-tax WACC 6.8% 9.6%

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: 8.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,126 (FY12-2021) to $1,463 (FY12-2031)
  • Net profit margin expansion from 7% to 7%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $21 $1,937M 80.0%
10-Year Growth $21 $1,985M 63.6%
5-Year EBITDA $16 $1,500M 74.2%
10-Year EBITDA $17 $1,605M 55.0%

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: 8.9%
  • Long-term growth rate: 3.5%
  • Fair value: $12.10 (-45.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.5% (Low) to 7.4% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $8 to $28
  • Selected fair value: $17.60 (-20.0% 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 $70M
Discount Rate (WACC) 9.6% - 6.8%
Enterprise Value $735M - $1,033M
Net Debt $189M
Equity Value $546M - $844M
Outstanding Shares 84M
Fair Value $7 - $10
Selected Fair Value $8.31

Key Financial Metrics

Metric Value
Market Capitalization $1841M
Enterprise Value $2029M
Trailing P/E 12.36
Forward P/E 24.36
Trailing EV/EBITDA 7.70
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.14

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% $6.44
Discounted Cash Flow (5Y) 25% $5.23
Dividend Discount Model (Multi-Stage) 20% $2.42
Dividend Discount Model (Stable) 15% $2.64
Earnings Power Value 10% $0.83
Weighted Average 100% $17.56

Investment Conclusion

Based on our comprehensive valuation analysis, Ferro Corp's weighted average intrinsic value is $17.56, which is approximately 20.2% below the current market price of $22.01.

Key investment considerations:

  • Strong projected earnings growth (7% to 7% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.14)

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