What is STFC's Intrinsic value?

State Auto Financial Corp (STFC) Intrinsic Value Analysis

Executive Summary

As of June 20, 2025, State Auto Financial Corp's estimated intrinsic value ranges from $6.06 to $58.39 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $6.06 -88.3%
Dividend Discount Model (Stable) $58.39 +12.3%

Is State Auto Financial Corp (STFC) undervalued or overvalued?

With the current market price at $52.01, 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 State Auto Financial Corp'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 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 0.54 0.76
Cost of equity 5.5% 8.2%
Cost of debt 5.0% 5.0%
Tax rate 9.2% 13.0%
Debt/Equity ratio 0.05 0.05
After-tax WACC 5.4% 8.0%

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: 24.7%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.8%
  • Long-term growth rate: 3.0%
  • Fair value: $6.06 (-88.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.2% (Low) to 5.5% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $18 to $99
  • Selected fair value: $58.39 (12.3% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $2315M
Enterprise Value $2391M
Trailing P/E 32.29
Forward P/E 174.97
Trailing EV/EBITDA 0.00
Current Dividend Yield 76.46%
Dividend Growth Rate (5Y) 1.33%
Debt-to-Equity Ratio 0.05

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% $1.21
Dividend Discount Model (Stable) 43% $8.76
Weighted Average 100% $28.49

Investment Conclusion

Based on our comprehensive valuation analysis, State Auto Financial Corp's weighted average intrinsic value is $28.49, which is approximately 45.2% below the current market price of $52.01.

Key investment considerations:

  • Conservative capital structure (Debt/Equity of 0.05)
  • Historical dividend growth of 1.33%

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