Arthur J. Gallagher & Co.AJGNYSE

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: $323.76 per share(market-calibrated)

+43.7%

Upside to Fair Value

Current

$225.30

Pure Model

$350.97

Fair Value

$323.76

Bull Case

$479.18

Bear Case

$253.38

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: $350.97.

What's Driving This Ratingfor AJG

✓

CapEx already efficient

CapEx at 0.93% 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 17.12% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $6.6B (25.72% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 21.48% in Year 1 to 2.50% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $424.81/share (26.1x terminal FCF) while exit multiple gives $277.14/share (15.0x 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 80.07% indicates efficient cash generation. FCF reaches $6.4B by Year 10 (24.99% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.66

Market Risk Premium4.50%

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

Cost of Equity (Re)7.46%

Cost of Debt

Pre-tax Cost of Debt2.57%

Tax Rate19.68%

After-tax Cost of Debt2.07%

Equity Weight (E/V)80.73%

Debt Weight (D/V)19.27%

WACC Calculation

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

WACC = (80.73% × 7.46%) + (19.27% × 2.07%)

= 6.42%

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	$16.9B	$20.7B	$22.7B	$23.9B	$25.7B
EBIT	$2.9B	$3.5B	$4.8B	$5.6B	$6.6B
Tax	$571M	$699M	$941M	$1.1B	$1.3B
NOPAT	$2.3B	$2.9B	$3.8B	$4.5B	$5.3B
+ Depreciation	$930M	$1.1B	$1.2B	$1.3B	$1.4B
- Capex	$157M	$192M	$211M	$221M	$238M
- Δ NWC	$281M	$198M	$52M	$55M	$59M
Free Cash Flow	$2.8B	$3.6B	$4.8B	$5.5B	$6.4B
Discount Factor	0.940	0.830	0.733	0.647	0.537
Present Value	$2.7B	$3.0B	$3.5B	$3.6B	$3.4B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.4B

Terminal Growth Rate2.50%

WACC6.42%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$167.9B

PV of Terminal Value$90.1B

Exit Multiple Method

Year 10 EBITDA$8.0B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$96.3B

PV of Terminal Value$51.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$33.1B

PV of Terminal Value$90.1B

Enterprise Value$123.2B

(-) Net Debt$12.6B

Equity Value$110.6B

Shares Outstanding260M

Price per Share$424.81

Exit Multiple Method

PV of Projected FCFs$33.1B

PV of Terminal Value$51.7B

Enterprise Value$84.8B

(-) Net Debt$12.6B

Equity Value$72.2B

Shares Outstanding260M

Price per Share$277.14

Pure Model Fair Value

$350.97

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%
4.42%	$491.53	$550.61	$619.01	$592.49	$567.19
5.42%	$383.19	$411.78	$450.15	$504.37	$567.19
6.42%	$314.46	$330.66	$350.97	$377.23	$412.48
7.42%	$265.82	$275.91	$288.05	$302.93	$321.61
8.42%	$228.95	$235.65	$243.49	$252.77	$263.94

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

$253.38

12.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.82

Base Case

$350.97

55.8% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.66

Bull Case

$479.18

112.7% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.56

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth21.48%

Year 3 Revenue Growth11.35%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin17.12%

Terminal EBIT Margin28.00%

Tax Rate19.68%

Historical Capex / Rev0.93%

NWC / Revenue9.37%

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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