FIRST ADVANTAGE CORP (FA) stock intrinsic value fair value estimate & owner earnings analysis

First Advantage screens job candidates and workers for employers: criminal and court records, employment and education verification, drug and health screening, and identity verification, sold mostly on a per-screen basis through integrations with employers' hiring systems. Its size roughly doubled when it bought Sterling Check on October 31, 2024, so FY2025 (revenue $1,574M) is the first full year of the combined company and the basis for our valuation. Earlier years describe a smaller business and are shown only as context. How we measure earnings. We start from operating cash flow, remove swings in working capital, and subtract stock compensation ($24.5M in 2025) and the recurring cost of keeping the business running, including capitalized software ($47.6M of the $54.3M 2025 capital spending). Because debt is large, we then add back cash interest ($161.8M paid in 2025) to see what the business earns before its lenders, value that, and subtract net debt. On that basis the business generated about $305M in 2025 before lenders (about $143.6M, or $0.83 per share, after interest). Acquired-customer amortization ($136.7M in 2025) is a non-cash charge, so it is added back; the real-world decay of acquired customer relationships is carried in the declining years we assume after year ten, and in the downside case, rather than by lowering the starting level. Operating cash flow for 2024 ($28.2M) was distorted by $68.1M of Sterling deal costs and is not used. The first half of 2026 supports the 2025 level: revenue rose 11.9% to $834M, and the same calculation points to roughly $325M a year before lenders. We did not move the starting level on that evidence. Growth reconciliation. Owner earnings per share in 2025 ($0.83) were flat against 2023 ($0.84); the jump from 2024 reflects the acquisition and a depressed 2024, not organic growth. The base case therefore assumes no growth in the first year or after. We credit no growth from the 11.9% first-half revenue gain, from Sterling cost savings, or from further acquisitions, because none of these is contracted, and the company's record of organic growth is uneven: revenue fell 5.7% in 2023 after rising in 2022. Base case: about $12.35 per share. Cash earned before lenders holds at about $305M a year for ten years, then declines about 3% a year as the contracts and technology integrations that tie customers in age and need replacing. Business worth about $4.08B; net debt about $1.93B; difference about $2.15B, or $12.35 on roughly 174M shares. Net debt takes borrowings of about $2.05B (carrying value $2.034B at June 30, 2026 plus roughly $30M of unamortized financing costs, our estimate) less $238M of cash beyond roughly $50M kept for operations, plus about $55M because the floating-rate term loan (SOFR plus 2.50% to 2.75%) is likely to cost somewhat more than 6% until it matures October 31, 2031. Bear case: about $5.98 per share. Hiring volumes drive screening revenue. The company's own record shows the sensitivity: in 2023 revenue fell 5.7% and cash earned before lenders fell about 16%. We assume a hiring downturn of the 2008 to 2010 kind, with revenue down roughly 15% over two years and cash earned before lenders falling to about $215M in year two and $185M in year three (about 2.8 times the revenue fall, the 2023 sensitivity), recovering to only about $260M after one customer, which accounted for about 12% of revenue in 2023 and 2024, re-bids and cuts its volume. After year ten the stream declines 5% a year. Refinancing the term loan in 2031 at a wider spread adds about $100M to the debt burden. Business worth about $3.05B; owes about $2.0B; difference about $1.04B. Even at the trough, cash earned before lenders (about $185M) covers cash interest (about $139M annualized in the first half of 2026), but with little room. Bull case: about $23.57 per share. The company executes on what it has already shown: first-half 2026 run-rate of about $326M before lenders, then 4% a year growth for ten years from upselling and cross-selling to existing customers and automation, with a 2% annual decline afterwards. Business worth about $6.0B; owes about $1.9B; difference about $4.1B. What would make this wrong. Equity is a thin slice on top of roughly $1.9B of net debt, so a 10% error in cash earned before lenders moves value per share by about 15%. A faster-than-assumed loss of customers to in-house or AI-based screening, a deeper hiring slump, or failure to refinance the 2031 term loan on acceptable terms would hurt most. Management guidance and adjusted (non-GAAP) figures were not used. Previous figures (bear $4.65, base $13.65, bull $31.40) were built on a different basis and are not comparable. The business has changed in two ways since: roughly a full year of combined results is now reported, and debt before issuance costs fell from $2.16B at the end of 2024 to $2.11B at the end of 2025 and the carrying amount to $2.03B by mid-2026. Margin-of-safety price: $6.00. We are fairly sure of the level of cash earned before lenders because 2025 and the first half of 2026 agree, but we are not sure of its path, because hiring activity is cyclical and one customer is 12% of revenue. The worst plausible outcome is a long hiring slump combined with a harder 2031 refinancing; the term loan has no maturity before then and the covenant test applies only to the revolver, so the business should survive, but shareholders would bear most of the loss because they hold a small slice above a large debt. If we are wrong about the downturn depth or the customer loss, shares could be worth about what the bear case shows. At $6.00 the company's cash after interest (roughly $165M a year if earnings hold) would be about 16% of that price, and that cash is largely used to repay debt, which accrues to shareholders. The price assumes a three-to-four-year holding period for that to show, and the business pays no cash to shareholders that we have verified in the meantime. The margin-of-safety price is $6.00 because it is close to the bear outcome, where a recession is already priced in, and in the base case the repayment of debt plus recovery toward base value supply the rest of the 20% annual return.