What is HCHC's Intrinsic value?

HC2 Holdings Inc (HCHC) Intrinsic Value Analysis

Executive Summary

As of June 9, 2025, HC2 Holdings Inc's estimated intrinsic value ranges from $3.65 to $27.89 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $5.55 +50.7%
Discounted Cash Flow (5Y) $3.65 -0.8%
Earnings Power Value $27.89 +657.9%

Is HC2 Holdings Inc (HCHC) undervalued or overvalued?

With the current market price at $3.68, 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 HC2 Holdings Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. 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 1.25 1.55
Cost of equity 8.4% 12.3%
Cost of debt 4.9% 10.4%
Tax rate 33.0% 41.4%
Debt/Equity ratio 1.96 1.96
After-tax WACC 5.0% 8.2%

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: 6.6% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,006 (FY12-2020) to $1,178 (FY12-2030)
  • Net profit margin expansion from -4% to -2%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $4 $942M 75.4%
10-Year Growth $6 $1,090M 58.8%
5-Year EBITDA $0 $661M 65.0%
10-Year EBITDA $2 $833M 46.1%

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 $176M
Discount Rate (WACC) 8.2% - 5.0%
Enterprise Value $2,149M - $3,509M
Net Debt $658M
Equity Value $1,490M - $2,851M
Outstanding Shares 78M
Fair Value $19 - $37
Selected Fair Value $27.89

Key Financial Metrics

Metric Value
Market Capitalization $286M
Enterprise Value $945M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 8.25
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 1.96

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) 46% $1.66
Discounted Cash Flow (5Y) 38% $0.91
Earnings Power Value 15% $2.79
Weighted Average 100% $8.26

Investment Conclusion

Based on our comprehensive valuation analysis, HC2 Holdings Inc's weighted average intrinsic value is $8.26, which is approximately 124.3% above the current market price of $3.68.

Key investment considerations:

  • Strong projected earnings growth (-4% to -2% margin)
  • Consistent cash flow generation

Given these factors, we believe HC2 Holdings Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.