Is MSA Safety Incorporated (NYSE:MSA) Trading At A 21% Discount?

Simply Wall St.12-28

Key Insights The projected fair value for MSA Safety is US$209 based on 2 Stage Free Cash Flow to Equity MSA Safety's US$164 share price signals that it might be 21% undervalued The US$190 ...

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Our analysis will employ the Discounted Cash Flow (DCF) model.  Don't get put off by the jargon, the math behind it is actually quite straightforward.  We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios.  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. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. The Model   We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase.  To begin with, we have to get estimates of the next ten years of cash flows.   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,  and so the sum of these future cash flows is then discounted to today's value:  10-year free cash flow (FCF) estimate  2026202720282029203020312032203320342035 Levered FCF ($, Millions) US$353.0mUS$350.3mUS$352.8mUS$356.2mUS$362.1mUS$369.9mUS$379.0mUS$389.3mUS$400.5mUS$412.5mGrowth Rate Estimate SourceAnalyst x3Analyst x2Analyst x1Est @ 0.97%Est @ 1.65%Est @ 2.14%Est @ 2.47%Est @ 2.71%Est @ 2.87%Est @ 2.99% Present Value ($, Millions) Discounted @ 7.1% US$330US$305US$287US$271US$257US$245US$235US$225US$216US$208(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$2.6b The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.1%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = US$412m× (1 + 3.3%) ÷ (7.1%– 3.3%) = US$11bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$11b÷ ( 1 + 7.1%)10= US$5.6b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is US$8.2b.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Relative to the current share price of US$164, the company appears   a touch undervalued    at a 21% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. NYSE:MSA Discounted Cash Flow December 28th 2025  Important Assumptions  We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows.  You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at MSA Safety as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 7.1%, which is based on a levered beta of 0.830. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.   See our latest analysis for MSA Safety SWOT Analysis for MSA SafetyStrength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows.  Dividend information for MSA. Weakness Earnings growth over the past year underperformed the Commercial Services industry. Dividend is low compared to the top 25% of dividend payers in the Commercial Services market.Opportunity Annual earnings are forecast to grow for the next 3 years. Good value based on P/E ratio and estimated fair value. Threat  Annual earnings are forecast to grow slower than the American market.  What else are analysts forecasting for MSA?  Moving On:  Although the valuation of a company is important, it  is only one of many factors that you need to assess for a company.  The DCF model is not a perfect stock valuation tool.  Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\"  If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different.   What is the reason for the share price sitting below the intrinsic value?   For MSA Safety, there are three  additional  elements  you should look at:  Financial Health: Does MSA have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.  Future Earnings: How does MSA's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.  Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!   PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.Mobile Infrastructure for Defense and DisasterThe next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.Get the investor briefing before the next round of contractsSponsored On Behalf of CiTechNew: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.35.13","shortVersion":"4.35.13","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2594220729","isCrawlerRequest":true}