Walker & Dunlop, Inc. (WD) stock intrinsic value fair value estimate & owner earnings analysis

Walker & Dunlop arranges and originates multifamily and commercial real estate loans, mostly for Fannie Mae, Freddie Mac and HUD, then keeps the servicing. At December 31, 2025 its servicing portfolio was $144.0 billion (6% higher than a year earlier), including $72.7 billion for Fannie Mae, $42.6 billion for Freddie Mac and $11.6 billion of HUD loans. The company also brokers property sales and manages investment funds. How we measure earnings. For a lender that sells its loans, reported operating cash flow swings wildly with the timing of loan originations and sales (2025: operating cash flow of negative $664 million, because originations of $17.2 billion exceeded sale proceeds of $16.3 billion). We strip out that loans-held-for-sale movement and other working-capital changes, deduct stock compensation ($26.7 million in 2025) and deduct capital spending ($15.8 million in 2025). Amortization, including amortization of servicing rights, is added back by the cash-flow method, while the non-cash value booked when new servicing rights are created ($179.7 million in 2025) is already subtracted in operating cash flow, so the two largely offset. Our rebuilt figure for 2025 matched net income plus non-cash items to within about 1%. Per diluted share this gives roughly $2.18 (2016), $3.81, $5.19, $5.17, $3.56, $7.42 (2021), $5.97, $4.97, $5.20 and $4.34 (2025). The median for 2018 to 2025, a window covering a full rate cycle, is about $5.18. Earlier years describe a smaller company and are excluded. What happened recently. In 2025 transaction volume rose 37% to $54.8 billion and revenue rose 9% to $1.23 billion, yet net income fell to $56.2 million from $108.2 million (diluted EPS $1.64 vs $3.19) and our owner earnings per share fell about 16%. Personnel costs rose 16% and reached 52% of revenue versus 49%; indemnified and repurchased loan expenses rose to $40.9 million from $10.6 million; and placement fees on escrow balances fell 9% to $152.6 million as short-term rates fell. Growth in volume was partly held back because new Fannie Mae loans carried a 15% lower weighted-average servicing fee, and the weighted-average remaining term of the servicing portfolio shortened to 7.2 years from 7.7. Net income for the first half of 2026 was $18.9 million versus $36.7 million a year earlier. We do not credit a rebound to the eight-year median level of about $5.18: two years below it and a weaker first half of 2026 do not corroborate it, so all three cases start from or below the 2025 level. Base case, about $40 per share. Owner earnings start at $3.65 per share in 2026 (a further 16% decline, the same as the latest actual change, because no dated event in the filings shows the decline reversing), then grow 3% a year for ten years. Growth is credited only from the servicing book: the portfolio grew from $115.7 billion in 2021 to $144.0 billion in 2025, through the 2022-2023 slowdown, and servicing fees rose 4% in 2025 to $337.4 million; we take a rate below the demonstrated pace because fee rates per loan are drifting lower. Beyond year ten, nothing specific is evidenced to continue, so earnings fade in a straight line to zero over the following ten years. We give no credit to volume recovery, market share gains or margin improvement. Bear case, about $25.5 per share. Owner earnings start at $3.00, decline 2% a year for ten years and fade to zero over the next ten. This reflects the disclosed pressures: lower servicing fees and shorter terms on new loans, rising personnel costs, and repurchase losses. It also reflects Fannie Mae risk-sharing: the maximum contingent liability on at-risk loans was $14.1 billion (up from $12.9 billion), and specific reserves on defaulted at-risk loans were $12.6 million versus $4.0 million. The company has also written off acquisition goodwill of $62 million in 2023 and $33 million in 2024, so acquired businesses have not always earned their price. Debt is not deducted separately; its interest cost is already in cash flow. Bull case, about $53 per share. Owner earnings hold at the 2025 level of $4.34 in 2026 and grow 5% a year for ten years, close to the 5.6% annual growth of the servicing portfolio since 2021, then fade to zero over ten years. Higher transaction volume would have to translate into earnings, which it did not in 2025. What would make this estimate wrong. If costs stabilize and the $5+ owner earnings of 2018-2024 return quickly, value would be higher than the base case. If fee compression continues or defaults on Fannie Mae risk-sharing loans rise materially, the bear case is closer to reality. Because the value of the whole stream depends on the servicing portfolio keeping its Fannie Mae, Freddie Mac and HUD relationships (the substantial majority of the portfolio is serviced through those programs), any change to their programs would also matter. Earnings figures for 2016-2019 could not be independently reconciled to net income line by line; the 2024 and 2025 reconciliations matched within about 2%.