Adobe Inc.ADBENASDAQ

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: $449.12 per share(market-calibrated)

+72.2%

Upside to Fair Value

Current

$260.88

Pure Model

$462.87

Fair Value

$449.12

Bull Case

$609.64

Bear Case

$338.68

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

0.50%

Calibrated Growth

2.61%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $462.87.

What's Driving This Ratingfor ADBE

✓

CapEx already efficient

CapEx at 1.30% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 35.55% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 9.48% revenue growth, fading to 3.75% by Year 10. Revenue reaches $48.1B (vs $23.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $333.21/share (14.7x terminal FCF) while exit multiple gives $592.53/share (35.4x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 79.06% indicates efficient cash generation. FCF reaches $14.9B by Year 10 (30.92% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.51

Market Risk Premium4.50%

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

Cost of Equity (Re)11.32%

Cost of Debt

Pre-tax Cost of Debt2.30%

Tax Rate18.37%

After-tax Cost of Debt1.88%

Equity Weight (E/V)94.36%

Debt Weight (D/V)5.64%

WACC Calculation

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

WACC = (94.36% × 11.32%) + (5.64% × 1.88%)

= 10.78%

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	$26.0B	$30.6B	$36.5B	$41.9B	$48.1B
EBIT	$9.3B	$10.9B	$13.0B	$14.9B	$17.1B
Tax	$1.7B	$2.0B	$2.4B	$2.7B	$3.1B
NOPAT	$7.6B	$8.9B	$10.6B	$12.2B	$14.0B
+ Depreciation	$926M	$1.1B	$1.3B	$1.5B	$1.7B
- Capex	$338M	$397M	$474M	$544M	$625M
- Δ NWC	$225M	$218M	$289M	$262M	$174M
Free Cash Flow	$7.9B	$9.3B	$11.1B	$12.9B	$14.9B
Discount Factor	0.903	0.735	0.599	0.488	0.359
Present Value	$7.1B	$6.9B	$6.7B	$6.3B	$5.3B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$14.9B

Terminal Growth Rate3.75%

WACC10.78%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$219.5B

PV of Terminal Value$78.8B

Exit Multiple Method

Year 10 EBITDA$18.8B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$527.2B

PV of Terminal Value$189.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$64.3B

PV of Terminal Value$78.8B

Enterprise Value$143.2B

(-) Net Debt$1.2B

Equity Value$141.9B

Shares Outstanding426M

Price per Share$333.21

Exit Multiple Method

PV of Projected FCFs$64.3B

PV of Terminal Value$189.3B

Enterprise Value$253.6B

(-) Net Debt$1.2B

Equity Value$252.4B

Shares Outstanding426M

Price per Share$592.53

Pure Model Fair Value

$462.87

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
8.78%	$558.30	$570.56	$585.25	$603.18	$625.56
9.78%	$499.19	$507.39	$516.95	$528.24	$541.77
10.78%	$450.57	$456.31	$462.87	$470.43	$479.24
11.78%	$409.55	$413.71	$418.38	$423.68	$429.72
12.78%	$374.29	$377.38	$380.81	$384.65	$388.96

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

$338.68

29.8% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.89

Base Case

$462.87

77.4% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.51

Bull Case

$609.64

133.7% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.29

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth9.48%

Year 3 Revenue Growth7.66%

Year 5 Revenue Growth8.60%

Year 7 Revenue Growth6.66%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin35.55%

Terminal EBIT Margin36.63%

Tax Rate18.37%

Historical Capex / Rev1.30%

NWC / Revenue10.00%

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: 28x EV/EBITDA (Technology 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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