What is WDR's Intrinsic value?

Waddell & Reed Financial Inc (WDR) Intrinsic Value Analysis

Executive Summary

As of June 7, 2025, Waddell & Reed Financial Inc's estimated intrinsic value ranges from $20.60 to $20.90 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $20.90 -16.3%
Dividend Discount Model (Stable) $20.60 -17.5%

Is Waddell & Reed Financial Inc (WDR) undervalued or overvalued?

With the current market price at $24.98, the stock appears to be moderately 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 Waddell & Reed Financial Inc'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 0.88 1.05
Cost of equity 6.9% 9.7%
Cost of debt 5.0% 5.0%
Tax rate 28.0% 31.2%
Debt/Equity ratio 0.06 0.06
After-tax WACC 6.7% 9.3%

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: 119.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.3%
  • Long-term growth rate: 3.5%
  • Fair value: $20.90 (-16.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.7% (Low) to 6.9% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $8 to $33
  • Selected fair value: $20.60 (-17.5% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $1549M
Enterprise Value $1356M
Trailing P/E 30.94
Forward P/E 21.11
Trailing EV/EBITDA 0.00
Current Dividend Yield 413.15%
Dividend Growth Rate (5Y) -19.07%
Debt-to-Equity Ratio 0.06

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% $4.18
Dividend Discount Model (Stable) 43% $3.09
Weighted Average 100% $20.77

Investment Conclusion

Based on our comprehensive valuation analysis, Waddell & Reed Financial Inc's weighted average intrinsic value is $20.77, which is approximately 16.8% below the current market price of $24.98.

Key investment considerations:

  • Conservative capital structure (Debt/Equity of 0.06)

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