What is MCCK's Intrinsic value?

Mestek Inc (MCCK) Intrinsic Value Analysis

Executive Summary

As of June 22, 2025, Mestek Inc's estimated intrinsic value ranges from $20.44 to $27.05 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $22.56 -46.3%
Discounted Cash Flow (5Y) $22.39 -46.7%
Dividend Discount Model (Multi-Stage) $20.44 -51.3%
Dividend Discount Model (Stable) $25.46 -39.4%
Earnings Power Value $27.05 -35.6%

Is Mestek Inc (MCCK) undervalued or overvalued?

With the current market price at $42.00, 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 Mestek 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 0.49 0.57
Cost of equity 6.1% 8.1%
Cost of debt 5.0% 5.0%
Tax rate 39.8% 42.0%
Debt/Equity ratio 0.04 0.04
After-tax WACC 6.0% 7.9%

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: 6.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $299 (FY12-2012) to $396 (FY12-2022)
  • Net profit margin expansion from 4% to 4%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $22 $170M 74.9%
10-Year Growth $23 $172M 53.9%
5-Year EBITDA $20 $151M 71.7%
10-Year EBITDA $22 $167M 52.6%

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: 7.1%
  • Long-term growth rate: 0.5%
  • Fair value: $20.44 (-51.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.1% (Low) to 6.1% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $17 to $34
  • Selected fair value: $25.46 (-39.4% 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 $14M
Discount Rate (WACC) 7.9% - 6.0%
Enterprise Value $178M - $233M
Net Debt $1M
Equity Value $177M - $232M
Outstanding Shares 8M
Fair Value $23 - $31
Selected Fair Value $27.05

Key Financial Metrics

Metric Value
Market Capitalization $317M
Enterprise Value $318M
Trailing P/E 21.66
Forward P/E 25.07
Trailing EV/EBITDA 5.60
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 128.18%
Debt-to-Equity Ratio 0.04

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% $6.77
Discounted Cash Flow (5Y) 25% $5.60
Dividend Discount Model (Multi-Stage) 20% $4.09
Dividend Discount Model (Stable) 15% $3.82
Earnings Power Value 10% $2.70
Weighted Average 100% $22.98

Investment Conclusion

Based on our comprehensive valuation analysis, Mestek Inc's weighted average intrinsic value is $22.98, which is approximately 45.3% below the current market price of $42.00.

Key investment considerations:

  • Strong projected earnings growth (4% to 4% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.04)
  • Historical dividend growth of 128.18%

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