What is KRA's Intrinsic value?

Kraton Corp (KRA) Intrinsic Value Analysis

Executive Summary

As of June 7, 2025, Kraton Corp's estimated intrinsic value ranges from $35.00 to $69.97 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $63.66 +36.9%
Discounted Cash Flow (5Y) $58.75 +26.4%
Dividend Discount Model (Multi-Stage) $35.00 -24.7%
Dividend Discount Model (Stable) $53.40 +14.9%
Earnings Power Value $69.97 +50.5%

Is Kraton Corp (KRA) undervalued or overvalued?

With the current market price at $46.49, 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 Kraton 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 1.44 1.62
Cost of equity 9.3% 12.7%
Cost of debt 4.2% 4.8%
Tax rate 16.1% 21.6%
Debt/Equity ratio 0.59 0.59
After-tax WACC 7.2% 9.4%

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: 8.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,970 (FY12-2021) to $2,321 (FY12-2031)
  • Net profit margin expansion from 9% to 9%
  • Capital expenditures maintained at approximately 6% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $59 $2,650M 67.2%
10-Year Growth $64 $2,809M 47.2%
5-Year EBITDA $46 $2,226M 61.0%
10-Year EBITDA $55 $2,514M 41.0%

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: 11.0%
  • Long-term growth rate: 0.5%
  • Fair value: $35.00 (-24.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.7% (Low) to 9.3% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $36 to $71
  • Selected fair value: $53.40 (14.9% 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 $244M
Discount Rate (WACC) 9.4% - 7.2%
Enterprise Value $2,611M - $3,413M
Net Debt $757M
Equity Value $1,854M - $2,656M
Outstanding Shares 32M
Fair Value $58 - $82
Selected Fair Value $69.97

Key Financial Metrics

Metric Value
Market Capitalization $1498M
Enterprise Value $2255M
Trailing P/E 7.37
Forward P/E 9.19
Trailing EV/EBITDA 5.50
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.59

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% $19.10
Discounted Cash Flow (5Y) 25% $14.69
Dividend Discount Model (Multi-Stage) 20% $7.00
Dividend Discount Model (Stable) 15% $8.01
Earnings Power Value 10% $7.00
Weighted Average 100% $55.79

Investment Conclusion

Based on our comprehensive valuation analysis, Kraton Corp's weighted average intrinsic value is $55.79, which is approximately 20.0% above the current market price of $46.49.

Key investment considerations:

  • Strong projected earnings growth (9% to 9% margin)
  • Consistent cash flow generation

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