What is GEO's Intrinsic value?

Geo Group Inc (GEO) Intrinsic Value Analysis

Executive Summary

As of June 6, 2025, Geo Group Inc's estimated intrinsic value ranges from $7.33 to $57.15 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $57.15 +118.1%
Discounted Cash Flow (5Y) $48.90 +86.6%
Dividend Discount Model (Multi-Stage) $18.16 -30.7%
Dividend Discount Model (Stable) $7.33 -72.0%
Earnings Power Value $27.97 +6.8%

Is Geo Group Inc (GEO) undervalued or overvalued?

With the current market price at $26.20, 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 Geo Group 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 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.66 0.85
Cost of equity 6.9% 9.6%
Cost of debt 7.0% 7.1%
Tax rate 25.1% 26.3%
Debt/Equity ratio 0.45 0.45
After-tax WACC 6.4% 8.3%

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: 7.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,424 (FY12-2024) to $4,240 (FY12-2034)
  • Net profit margin expansion from 1% to 6%
  • Capital expenditures maintained at approximately 4% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $49 $8,530M 83.9%
10-Year Growth $57 $9,696M 69.0%
5-Year EBITDA $38 $7,048M 80.6%
10-Year EBITDA $46 $8,058M 62.7%

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: 8.3%
  • Long-term growth rate: 3.0%
  • Fair value: $18.16 (-30.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.6% (Low) to 6.9% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $3 to $11
  • Selected fair value: $7.33 (-72.0% 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 $402M
Discount Rate (WACC) 8.3% - 6.4%
Enterprise Value $4,855M - $6,290M
Net Debt $1,619M
Equity Value $3,236M - $4,671M
Outstanding Shares 141M
Fair Value $23 - $33
Selected Fair Value $27.97

Key Financial Metrics

Metric Value
Market Capitalization $3703M
Enterprise Value $5322M
Trailing P/E 71.87
Forward P/E 62.18
Trailing EV/EBITDA 12.40
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -100.00%
Debt-to-Equity Ratio 0.45

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% $17.14
Discounted Cash Flow (5Y) 25% $12.22
Dividend Discount Model (Multi-Stage) 20% $3.63
Dividend Discount Model (Stable) 15% $1.10
Earnings Power Value 10% $2.80
Weighted Average 100% $36.90

Investment Conclusion

Based on our comprehensive valuation analysis, Geo Group Inc's weighted average intrinsic value is $36.90, which is approximately 40.8% above the current market price of $26.20.

Key investment considerations:

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

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