What is IVR's Intrinsic value?

Invesco Mortgage Capital Inc (IVR) Intrinsic Value Analysis

Executive Summary

As of June 3, 2025, Invesco Mortgage Capital Inc's estimated intrinsic value ranges from $14.81 to $26.99 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $26.99 +270.7%
Dividend Discount Model (Stable) $14.81 +103.4%

Is Invesco Mortgage Capital Inc (IVR) undervalued or overvalued?

With the current market price at $7.28, 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 Invesco Mortgage Capital Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

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 0.55 0.7
Cost of equity 6.4% 8.8%
Cost of debt 4.0% 23.9%
Tax rate 26.2% 27.0%
Debt/Equity ratio 10.06 10.06
After-tax WACC 3.3% 16.6%

Valuation Methods

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: 215.3%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 7.6%
  • Long-term growth rate: 3.0%
  • Fair value: $26.99 (270.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.8% (Low) to 6.4% (High)
  • Long-term growth rate: 3.0% (Low) to 3.0% (High)
  • Fair value range: $9 to $20
  • Selected fair value: $14.81 (103.4% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $480M
Enterprise Value $5792M
Trailing P/E 9.52
Forward P/E 8.48
Trailing EV/EBITDA 54.00
Current Dividend Yield 2230.33%
Dividend Growth Rate (5Y) -6.41%
Debt-to-Equity Ratio 10.06

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
Dividend Discount Model (Multi-Stage) 57% $5.40
Dividend Discount Model (Stable) 43% $2.22
Weighted Average 100% $21.77

Investment Conclusion

Based on our comprehensive valuation analysis, Invesco Mortgage Capital Inc's weighted average intrinsic value is $21.77, which is approximately 199.0% above the current market price of $7.28.

Key investment considerations:

  • Strong projected earnings growth (21% to 33% margin)
  • Consistent cash flow generation

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