KNF
Knife River Corporation
$79.51
Cyclical & Capital-Intensive
70%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 50.1% above fair value
You pay
$79.51
Bear
$38.84
Fair
$52.97
Bull
$67.10
Bear
$38.84
-51.1%
$2.76 × 14x + net cash
Fair
$52.97
-33.4%
$2.76 × 18x + net cash
Bull
$67.10
-15.6%
$2.76 × 22x + net cash
Key Value Driver
Through-cycle normalized EPS ($2.76)
Implied Market Multiple
28.8x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $99.25 from 7 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $52.97 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 4.1x 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 $99.25 (from 7 analysts). Our estimate is 58% 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