Arch Capital Group Ltd.ACGLNASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $253.95 per share(market-calibrated)

+151.3%

Upside to Fair Value

Current

$101.06

Pure Model

$274.92

Fair Value

$253.95

Bull Case

$325.57

Bear Case

$233.46

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $274.92.

What's Driving This Ratingfor ACGL

✓

CapEx already efficient

CapEx at 0.24% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 24.58% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $6.7B (27.28% margin).

→

Moderate revenue growth

Analyst consensus projects -11.88% revenue growth, fading to 2.50% by Year 10. Revenue reaches $24.4B (vs $19.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $337.36/share (28.6x terminal FCF) while exit multiple gives $212.48/share (14.2x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 84.54% indicates efficient cash generation. FCF reaches $5.8B by Year 10 (23.67% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.38

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.21%

Cost of Debt

Pre-tax Cost of Debt5.07%

Tax Rate14.73%

After-tax Cost of Debt4.32%

Equity Weight (E/V)93.18%

Debt Weight (D/V)6.82%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (93.18% × 6.21%) + (6.82% × 4.32%)

= 6.09%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$17.6B	$19.9B	$21.6B	$22.7B	$24.4B
EBIT	$4.3B	$4.9B	$5.6B	$6.0B	$6.7B
Tax	$636M	$720M	$821M	$889M	$982M
NOPAT	$3.7B	$4.2B	$4.8B	$5.1B	$5.7B
+ Depreciation	$126M	$142M	$154M	$162M	$175M
- Capex	$42M	$48M	$52M	$55M	$59M
- Δ NWC	-$66M	$47M	$15M	$15M	$16M
Free Cash Flow	$3.8B	$4.2B	$4.8B	$5.2B	$5.8B
Discount Factor	0.943	0.838	0.744	0.661	0.554
Present Value	$3.6B	$3.5B	$3.6B	$3.5B	$3.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.8B

Terminal Growth Rate2.50%

WACC6.09%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$165.2B

PV of Terminal Value$91.5B

Exit Multiple Method

Year 10 EBITDA$6.8B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$82.0B

PV of Terminal Value$45.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$34.7B

PV of Terminal Value$91.5B

Enterprise Value$126.2B

(-) Net Debt$1.7B

Equity Value$124.5B

Shares Outstanding369M

Price per Share$337.36

Exit Multiple Method

PV of Projected FCFs$34.7B

PV of Terminal Value$45.4B

Enterprise Value$80.1B

(-) Net Debt$1.7B

Equity Value$78.4B

Shares Outstanding369M

Price per Share$212.48

Pure Model Fair Value

$274.92

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
4.09%	$380.17	$430.82	$427.46	$410.63	$394.56
5.09%	$297.01	$319.66	$351.07	$397.54	$394.56
6.09%	$246.93	$259.21	$274.92	$295.72	$324.56
7.09%	$212.54	$219.98	$229.05	$240.34	$254.77
8.09%	$186.96	$191.81	$197.54	$204.38	$212.72

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$233.46

131.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.48

Base Case

$274.92

172.0% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.38

Bull Case

$325.57

222.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.32

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-11.88%

Year 3 Revenue Growth9.40%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin24.58%

Terminal EBIT Margin28.00%

Tax Rate14.73%

Historical Capex / Rev0.24%

NWC / Revenue2.77%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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