"Ander, a true investor would not bank on a re rating or a quick rise in price." I guess I'm not a true investor .

My typical holding period is multi-year and I look at multiples as heuristics for a DCF. So if you get to higher numbers on the DCF based on your FCF yield and growth estimates it should distill to a much higher multiple in the SOTP. So forget the re-rating for now, my question is what do you think intrinsic value is? What's the upside / downside?

I would not use an analyst's valuation. They are (almost) always going to use the current stock price as their starting point and adjust their assumptions accordingly.

I think the other poster is saying that the investment merit doesn't depend on a re-rating.

Let's assume that ADS will forever trade at 10x. Will grow receivables at 10% per annum. Reinvest at 20% ROE. Payout the rest as dividends. In that scenario, you would earn 5% yield + 10% growth = 15%. This seems like a good investment even if the stock doesn't re-rate.

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What you are saying is not wrong, it is just the inverse of what Vince is saying.

Intrinsic Value: Stock is trading at $200 but it is worth $300, so I will buy.

Investment: Projected returns are 15%, so I will buy.

Implicitly, the "investment" view is saying that 10x is not the right price. But it doesn't care what the "right" price is. And you can conveniently ignore the discount rate quagmire.

Personally, I always look at my projected returns from the current price. I never try to calculate the intrinsic value or do a DCF. If I think I can reasonably expect to earn 15%, then I buy. This works well for GARP investments but doesn't work as well for more traditional value investments. In this case, I think there is the opportunity for 15% underlying returns (on the stub) plus a multiple re-rating.