CORVEL CORP (CRVL) stock intrinsic value fair value estimate & owner earnings analysis

CorVel manages workers' compensation claims and medical costs for employers, insurers, third-party administrators and public entities across the United States. It has two service lines: patient management ($597 million of fiscal 2026 revenue), which includes claims administration for self-insured employers, case management and utilization review; and network solutions ($362 million), which includes medical bill review, its preferred-provider network, pharmacy and related cost-containment programs. Revenue grew from $519 million in fiscal 2017 (years end March 31) to $959 million in fiscal 2026, about 7% a year, entirely organically and through the 2020 pandemic dip. No customer is 10% of revenue. The company has no borrowings, $256 million of cash at June 30, 2026, pays no dividend, and has used surplus cash to retire shares every year (diluted shares down from about 58.7 million to 50.9 million on a split-adjusted basis since fiscal 2017). Earnings measure. We measure owner earnings as operating cash flow, with working-capital timing swings removed, less stock compensation and less the capital spending needed to keep the business at its current size. CorVel's capital spending is almost all its own claims and bill-review software and equipment. Over the decade it ran about 4.3% of revenue; we treat the part that matched revenue growth as growth investment and the rest as maintenance, so most of the jump to $45 million in fiscal 2026 is still charged as a cost. On this basis owner earnings per share were $0.33 (fiscal 2017), $0.56, $1.01, $0.70, $0.82, $1.23, $1.27, $1.41, $1.70 and $2.03 (fiscal 2026). There is no debt and no interest, so these figures are also the business's cash flow before lenders. Starting level. We anchor on $1.70 per share (about $87 million), the median of fiscal 2024 to 2026. Those three years reflect the business as it is now: the shift toward enhanced bill review and larger claims-administration accounts lifted owner earnings from about 7% of revenue on average in fiscal 2017 to 2021 (ranging 4% to 10%) to 9-11% in every year since. Fiscal 2026's $2.03 was helped by a near-zero credit-loss provision ($0.1 million against $3.4 million the year before), so we do not use it as the level. Owner earnings grew 19% in fiscal 2026; the base case assumes 6% in year one from a lower starting point, so it does not lean on that pace continuing. The June 2026 quarter (revenue up 11%, net income up 18%) is consistent with the level holding. Base case ($46 per share). Owner earnings grow 6% a year for five years and 4% a year for the next five, then hold flat with no further growth. The growth credited is the continuation of a mechanism CorVel has run for a decade, through the 2020 downturn and funded from its own cash: winning claims-administration and bill-review programs one account at a time and expanding inside existing accounts. Fiscal 2026 network solutions growth of 15% came mainly from existing customers using more services. We credit less than the 7% demonstrated revenue rate and no further margin gain, because margin expansion has already done much of its work and is not repeatable on the record. Buybacks are not credited. The business is worth about $2.16 billion; with no debt and about $206 million of cash above an operating cushion, equity is about $2.36 billion, or $46 per share. Bear case ($25 per share). Workers' compensation volume follows employment. We use the 2020 shutdown, when revenue fell 7% in a year, as the downturn, arriving in year three. Before that, owner-earnings margin slides back from 9% to 8%, the level of fiscal 2021, as large accounts are repriced or lost to bigger competitors such as Sedgwick, Gallagher Bassett and Crawford, and customers bring work in-house (a risk the filing names). In the downturn margin drops to 6.5%, recovering only to 7.5%, with revenue growing 2% a year after. Beyond year ten earnings shrink 2% a year, because nothing we can evidence protects the margin against larger rivals indefinitely. Business value about $1.08 billion, no debt, plus $206 million of surplus cash, gives about $1.29 billion, or $25 per share. Bull case ($64 per share). Revenue grows 9% a year for five years, below the 10.4% annual pace from fiscal 2022 to 2026, as recently won large payer and bill-review programs mature, then 6% for five years. Owner-earnings margin holds at 10.5%, just under fiscal 2026's 10.9%. Flat after year ten. Business value about $3.06 billion plus surplus cash, about $3.26 billion, or $64 per share. Previous estimates were made on a different basis and are not comparable. What could make this wrong. On the down side: the margin gain since 2021 proves less durable than the record suggests, for example if fiscal 2026's very low credit-loss charge reverses or a large account is lost. CorVel does not disclose its biggest customers, so we cannot fully size how concentrated the newer programs are. On the up side: capital spending well above depreciation ($45 million against $32 million in fiscal 2026) is already charged mostly as maintenance cost, which understates earnings if it is really growth investment. Margin-of-safety price. We are fairly confident about the earnings level. It rests on ten years of audited cash flow with no debt, no acquisitions and no unusual accounting, and the reconciliation between cash flow and net income ties exactly. The worst plausible outcome is a recession on the scale of 2020 combined with losing pricing to much larger rivals. With no debt, a cash pile and no customer at 10% of revenue, the company would come through that intact, just worth less: roughly the bear figure in the mid-$20s. If we are wrong about continued account growth and earnings simply stay at today's level for good, the shares are worth about $32; if the margin also slips back, about $25. The business pays no dividend, but it buys back about 1-2% of its shares a year and builds cash while waiting. The margin-of-safety price is $27. That price sits near the bear value even if a 2020-style recession and lost pricing both arrive, because the debt-free balance sheet and cash keep the company whole through it. The base case value should itself rise to about $55 within three years as earnings grow and cash builds. From $27, a 20% annual return is implied if the price reaches $39 within two years or $47 within three, both well below where the base case points. A higher price would need us to be right about the margin, and the bear case says we may not be.