DCO
Ducommun Incorporated
$144.37
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 110.9% above fair value
You pay
$144.37
Bear
$54.04
Fair
$68.45
Bull
$82.86
Bear
$54.04
-62.6%
$2.33 × 18x + net cash
Fair
$68.45
-52.6%
$2.33 × 22x + net cash
Bull
$82.86
-42.6%
$2.33 × 26x + net cash
Key Value Driver
Through-cycle normalized EPS ($2.33)
Implied Market Multiple
62.0x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $141.00 from 20 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $68.45 per share.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Price-to-book value of 7.7x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $141.00 (from 20 analysts). Our estimate is 69% below the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing