ERII
Energy Recovery, Inc.
$8.62
Platform & Compounding FCF
50%
Two-stage FCF DCF
Mild
·
Conviction
Fair Value
Trading 5.7% below fair value
You pay
$8.62
Bear
$6.46
Fair
$9.14
Bull
$12.07
Bear
$6.46
-25.0%
9% stage 1 growth, 11% discount
Fair
$9.14
+6.0%
14% stage 1 growth, 11% discount
Bull
$12.07
+40.0%
19% stage 1 growth, 11% discount
Key Value Driver
FCF growth rate (14% base case)
Terminal Value % of EV
42%
Implied Market Multiple
32.5x
Market is pricing in (growth)
15.5%
vs 14.3% base
Summary
Our base-case estimate uses a two-stage discounted cash flow model based on free cash flow. We then blend that result with the average analyst price target of $12.50 from 16 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $9.14 per share.
Warnings
Stock-based employee pay equals 34% of profits. This dilutes existing shareholders, so cash flow alone overstates what owners really earn.
Wall Street's average price target is $12.50 (from 16 analysts). Our estimate is 36% below the consensus -- consider that gap carefully.
Key Risks
- P/E alone misleads — earnings depressed by growth investment
- Cyclical or commodity businesses may be misclassified as platforms
- Terminal value dominance suggests sensitivity to long-run assumptions