Is Verra Mobility Corporation (NASDAQ:VRRM) Trading At A 47% Discount?

In This Article:

Key Insights

  • Verra Mobility's estimated fair value is US$49.98 based on 2 Stage Free Cash Flow to Equity

  • Verra Mobility's US$26.31 share price signals that it might be 47% undervalued

  • Our fair value estimate is 63% higher than Verra Mobility's analyst price target of US$30.58

In this article we are going to estimate the intrinsic value of Verra Mobility Corporation (NASDAQ:VRRM) by taking the forecast future cash flows of the company and discounting them back to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

Check out our latest analysis for Verra Mobility

The Calculation

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$196.5m

US$247.0m

US$285.1m

US$318.0m

US$346.1m

US$370.1m

US$390.8m

US$409.1m

US$425.6m

US$440.7m

Growth Rate Estimate Source

Analyst x2

Analyst x1

Est @ 15.42%

Est @ 11.55%

Est @ 8.83%

Est @ 6.93%

Est @ 5.60%

Est @ 4.67%

Est @ 4.02%

Est @ 3.56%

Present Value ($, Millions) Discounted @ 6.6%

US$184

US$217

US$236

US$247

US$252

US$253

US$250

US$246

US$240

US$233

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$2.4b