What is NEWT's Intrinsic value?

Newtek Business Services Corp (NEWT) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, Newtek Business Services Corp's estimated intrinsic value ranges from $11.31 to $101.01 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $101.01 +873.1%
Discounted Cash Flow (5Y) $68.49 +559.8%
Dividend Discount Model (Multi-Stage) $13.42 +29.3%
Dividend Discount Model (Stable) $11.31 +8.9%

Is Newtek Business Services Corp (NEWT) undervalued or overvalued?

With the current market price at $10.38, 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 Newtek Business Services 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

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 1.71 2.83
Cost of equity 11.7% 20.7%
Cost of debt 4.0% 9.1%
Tax rate 26.2% 27.0%
Debt/Equity ratio 6.13 6.13
After-tax WACC 4.2% 8.6%

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: 6.4% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $273 (FY12-2024) to $598 (FY12-2034)
  • Net profit margin expansion from 19% to 18%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $68 $3,274M 77.1%
10-Year Growth $101 $4,131M 61.8%
5-Year EBITDA $42 $2,585M 71.0%
10-Year EBITDA $75 $3,435M 54.0%

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: 41.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 16.2%
  • Long-term growth rate: 0.5%
  • Fair value: $13.42 (29.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 20.7% (Low) to 11.7% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $6 to $16
  • Selected fair value: $11.31 (8.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $273M
Enterprise Value $1744M
Trailing P/E 5.41
Forward P/E 4.96
Trailing EV/EBITDA 10.85
Current Dividend Yield 755.44%
Dividend Growth Rate (5Y) -16.96%
Debt-to-Equity Ratio 6.13

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) 33% $30.30
Discounted Cash Flow (5Y) 28% $17.12
Dividend Discount Model (Multi-Stage) 22% $2.68
Dividend Discount Model (Stable) 17% $1.70
Weighted Average 100% $57.56

Investment Conclusion

Based on our comprehensive valuation analysis, Newtek Business Services Corp's weighted average intrinsic value is $57.56, which is approximately 454.5% above the current market price of $10.38.

Key investment considerations:

  • Strong projected earnings growth (19% to 18% margin)
  • Consistent cash flow generation

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