What is VSEC's Intrinsic value?

VSE Corp (VSEC) Intrinsic Value Analysis

Executive Summary

As of May 22, 2025, VSE Corp's estimated intrinsic value ranges from $11.21 to $111.16 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $111.16 -15.3%
Discounted Cash Flow (5Y) $74.59 -43.2%
Dividend Discount Model (Multi-Stage) $82.27 -37.3%
Dividend Discount Model (Stable) $11.21 -91.5%
Earnings Power Value $27.44 -79.1%

Is VSE Corp (VSEC) undervalued or overvalued?

With the current market price at $131.27, 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 VSE 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 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.88 0.93
Cost of equity 7.9% 10.1%
Cost of debt 7.0% 7.9%
Tax rate 23.1% 24.4%
Debt/Equity ratio 0.16 0.16
After-tax WACC 7.6% 9.5%

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: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,080 (FY12-2024) to $2,413 (FY12-2034)
  • Net profit margin expansion from 3% to 10%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $75 $2,001M 80.6%
10-Year Growth $111 $2,757M 67.0%
5-Year EBITDA $67 $1,842M 78.9%
10-Year EBITDA $98 $2,482M 63.4%

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: 58.2%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 9.0%
  • Long-term growth rate: 3.5%
  • Fair value: $82.27 (-37.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.1% (Low) to 7.9% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $6 to $17
  • Selected fair value: $11.21 (-91.5% 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 $87M
Discount Rate (WACC) 9.5% - 7.6%
Enterprise Value $908M - $1,145M
Net Debt $459M
Equity Value $449M - $686M
Outstanding Shares 21M
Fair Value $22 - $33
Selected Fair Value $27.44

Key Financial Metrics

Metric Value
Market Capitalization $2713M
Enterprise Value $3173M
Trailing P/E 209.33
Forward P/E 53.19
Trailing EV/EBITDA 9.00
Current Dividend Yield 27.35%
Dividend Growth Rate (5Y) 15.48%
Debt-to-Equity Ratio 0.16

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% $33.35
Discounted Cash Flow (5Y) 25% $18.65
Dividend Discount Model (Multi-Stage) 20% $16.45
Dividend Discount Model (Stable) 15% $1.68
Earnings Power Value 10% $2.74
Weighted Average 100% $72.88

Investment Conclusion

Based on our comprehensive valuation analysis, VSE Corp's weighted average intrinsic value is $72.88, which is approximately 44.5% below the current market price of $131.27.

Key investment considerations:

  • Strong projected earnings growth (3% to 10% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.16)
  • Historical dividend growth of 15.48%

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