After years of lackluster performance, some popular price multiples seem to imply that URS Corporation (NYSE: URS) may be a good value. We'll take a closer look at the measures to see what URS really has to offer. 

Relative value
Over the past five years, the S&P 500 has more than doubled in value. Meanwhile, URS has generated an average return of 3% per year. Currently, URS Corp. trades at a relative discount to its peers. For example, it's current price to earnings ratio is 14, compared to an industry average of over 22.  

In absolute terms, a P/E of 14 doesn't scream "cheap". In URS Corp.'s case, however, it may be more attractive than it looks. That's because URS has a large amount of non-cash charges against it's earnings. According to Standard and Poor's, URS reported more depreciation than net income in 2013 -- $264 million versus $247 million, respectively.  

In other words, URS earnings would be more than twice as high if it wasn't for the depreciation. Though depreciation is a legitimate accounting charge, it doesn't result in the immediate loss of income. It's not a "real" current charge in that sense, thus the term "non-cash charge".  

With that in mind, price to cash flow may be a more appropriate measure here. It compares share price to the actual cash flows that a company generates, instead of the earnings reported on paper  At the end of the day, a company's ability to generate liquid cash, not hypothetical earnings, is what creates value. At 5.76, URS Corp.'s P/CF is 48% lower than the industry average of 11.14. URS looks attractively priced from a cash flow perspective.  

The table below shows several price multiples for URS versus industry averages:

Measure URS  Industry
Price to earnings 14.31 22.78
Price to sales 0.32 0.56
Price to cash flow 5.76 11.14
Price to book value    0.84 2.06

Source: Morningstar

Priced below equity value?
You may have noticed that price to book value really stands out for URS. At 0.84, the current P/B implies that URS Corp.'s market price is only 84% of its equity value (the value of its assets minus its liabilities). Theoretically, an investor could buy URS at $47 per share (market price), sell all the company's assets for $57 per share (current book value), and then pocket the difference of $10 per share -- less any costs of course.   

Under closer scrutiny, however, that theory doesn't check out for URS. The company's balance sheet shows more than $4.2 billion dollars in goodwill and intangible assets. These intangibles represent hypothetical values that can come from things like branding and intellectual property.

According to URS Corp.'s annual report, the bulk of its intangibles came from previous acquisitions where URS paid more than book value for the companies; the differences were recorded as goodwill. Adjusting for intangibles, URS has a tangible book value of negative $38 million. The breakdown is shown in the table below:

  Total assets: $8.71 billion
- Total liabilities: $4.49 billion
= Total equity: $4.22 billion
- Goodwill and intangibles: $4.26 billion
= Tangible book value:     ($38.0 million)

Source: URS

It's hard to say what URS Corp.'s "goodwill" is really worth. The fact that URS took a $825 million impairment charge against its goodwill in 2011 and another $351 million charge in 2013 indicates that the goodwill is worth less than initially thought. Whatever the worth, the company's stock clearly isn't attractively priced in terms of tangible book value.

Foolish fair value
While URS looks like a good value in terms of cash flow, it comes up short from a book value perspective. Which measure do we then use to estimate fair value? It may be tempting to lean toward the measure that supports your opinion of the company's stock.

To avoid personal biases, though, we should include a range of measures to average out the estimate. The table below shows earnings, cash flow, and book value per share for URS, along with my estimates of "fair value" multiples for each. The products of each row are averaged out to produce an overall average fair value of $53.75:

Measure URS Multiple Fair Value
Earnings $3.31 14  $49.65
Cash flow  $6.85 9 $61.65
Book value $56.58


 Avg. fair value      $53.75

My fair value estimate tells me that URS may be slightly undervalued. Given the issues with book value, however, I'd look for a larger discount before considering it a compelling buy. All else equal, I'd want a 25% discount to fair value, or a price tag of around $40. Since URS has traded as low as $29 in the past five years, that price doesn't seem unreasonable.  

Whatever your opinion on the company, just remember to take positions in moderation and as part of a broadly diversified portfolio appropriate for your goals and needs.