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Mercury General Corporation (MCY) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Mercury General Corporation (MCY)

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Intrinsic Value (DCF)

Current$91.39
→
Intrinsic$155.84
+71%
$107.39$155.84$247.93
Market implies 1% growth for 5 years
DCF analysis suggests MCY could have 71% upside at 8% growth — verify assumptions match your view.
At $91, the market prices in only 1% growth — below historical 8%, suggesting low expectations.
Range: Bear $107 → Bull $248. Current price implies expectations below the bear case — very conservative expectations.
Discount ↓Growth →4%6%8%10%
8%$184$201$219$238
10%$132$144$156$169
12%$103$112$121$131
14%$85$92$99$107

Bull Case

  • Bull case ($248) offers 171% upside at 10% growth, 9% discount
  • Price below even worst-case scenario — strong margin of safety
  • Market-implied growth (1%) ≤ historical CAGR (8%)

Bear Case

  • Bear case ($107) with 6% growth, 12% discount rate
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5-Year Net Income Projection

Year 1$505.39M
Year 2$545.82M
Year 3$589.49M
Year 4$636.64M
Year 5$687.58M
Terminal$10.12B

📐 Model Inputs

Growth Rate8.0%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Net Income$467.95MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. Uses Net Income (FCF not meaningful for insurers). See FAQ below for full methodology.

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Frequently Asked Questions

Is MCY stock undervalued or overvalued?
🟢 UNDERVALUED

MCY trades at $91.39 vs. our DCF-derived intrinsic value of $155.84, implying +77% upside. At a 10.0% WACC and 8.0% projected FCF growth, the market appears to be underpricing the present value of MCY's future cash flows. The bear case ($113.55) still suggests upside, providing margin of safety.

What is MCY's intrinsic value?

Using a 5-year DCF model: Base FCF of $468M, projected at 8.0% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $-133M net debt and dividing by 0.06B shares: Bear $113.55 | Base $155.84 | Bull $212.39. Current price $91.39 implies +77% to base case.

How is MCY's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 8.0% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($8.50B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 18.2x.