What is PRSP's Intrinsic value?

Perspecta Inc (PRSP) Intrinsic Value Analysis

Executive Summary

As of June 13, 2025, Perspecta Inc's estimated intrinsic value ranges from $28.36 to $38.46 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $28.36 -3.3%
Earnings Power Value $38.46 +31.1%

Is Perspecta Inc (PRSP) undervalued or overvalued?

With the current market price at $29.34, the stock appears to be fairly valued.

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 Perspecta 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 0.86 0.93
Cost of equity 6.8% 9.0%
Cost of debt 9.1% 12.3%
Tax rate 37.1% 38.3%
Debt/Equity ratio 0.55 0.55
After-tax WACC 6.4% 8.5%

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: 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $4,504 (FY03-2020) to $8,571 (FY03-2030)
  • Net profit margin expansion from -15% to 3%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $(1,234) $1,443M 103.6%
10-Year Growth $28 $6,752M 85.9%
5-Year EBITDA $(1,234) $734M 107.1%
10-Year EBITDA $13 $4,285M 77.8%

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 $613M
Discount Rate (WACC) 8.5% - 6.4%
Enterprise Value $7,199M - $9,561M
Net Debt $2,180M
Equity Value $5,019M - $7,381M
Outstanding Shares 161M
Fair Value $31 - $46
Selected Fair Value $38.46

Key Financial Metrics

Metric Value
Market Capitalization $4730M
Enterprise Value $6910M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 11.50
Current Dividend Yield 88.79%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.55

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) 75% $8.51
Earnings Power Value 25% $3.85
Weighted Average 100% $30.88

Investment Conclusion

Based on our comprehensive valuation analysis, Perspecta Inc's weighted average intrinsic value is $30.88, which is approximately 5.3% above the current market price of $29.34.

Key investment considerations:

  • Strong projected earnings growth (-15% to 3% margin)
  • Consistent cash flow generation

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