Align Technology, Inc.ALGNNASDAQ

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $148.16 per share(market-calibrated)

-18.9%

Upside to Fair Value

Current

$182.64

Pure Model

$144.03

Fair Value

$148.16

Bull Case

$172.59

Bear Case

$115.20

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

9.69%

Calibrated Growth

4.67%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $144.03.

What's Driving This Ratingfor ALGN

↓

CapEx normalizing toward maintenance

Historical CapEx is 5.40% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$111M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 18.26% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.1B (19.54% margin).

→

Moderate revenue growth

Analyst consensus projects 3.80% revenue growth, fading to 3.00% by Year 10. Revenue reaches $5.8B (vs $4.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $93.36/share (10.7x terminal FCF) while exit multiple gives $194.70/share (40.9x terminal FCF). The 24x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $182.64, the market implies 9.69% perpetual growth — 669bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 58.67% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.83

Market Risk Premium4.50%

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

Cost of Equity (Re)12.74%

Cost of Debt

Pre-tax Cost of Debt0.00%

Tax Rate29.89%

After-tax Cost of Debt0.00%

Equity Weight (E/V)99.14%

Debt Weight (D/V)0.86%

WACC Calculation

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

WACC = (99.14% × 12.74%) + (0.86% × 0.00%)

= 12.63%

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	$4.2B	$4.6B	$5.0B	$5.3B	$5.8B
EBIT	$765M	$846M	$938M	$1.0B	$1.1B
Tax	$229M	$253M	$280M	$306M	$341M
NOPAT	$536M	$593M	$658M	$717M	$801M
+ Depreciation	$158M	$174M	$190M	$201M	$220M
- Capex	$226M	$230M	$230M	$221M	$205M
- Δ NWC	$15M	$26M	$15M	$16M	$17M
Free Cash Flow	$452M	$511M	$603M	$681M	$799M
Discount Factor	0.888	0.700	0.552	0.435	0.304
Present Value	$402M	$358M	$333M	$296M	$243M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$799M

Terminal Growth Rate3.00%

WACC12.63%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$8.6B

PV of Terminal Value$2.6B

Exit Multiple Method

Year 10 EBITDA$1.4B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$32.7B

PV of Terminal Value$10.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$3.2B

PV of Terminal Value$2.6B

Enterprise Value$5.8B

(-) Net Debt-$965M

Equity Value$6.8B

Shares Outstanding73M

Price per Share$93.36

Exit Multiple Method

PV of Projected FCFs$3.2B

PV of Terminal Value$10.0B

Enterprise Value$13.2B

(-) Net Debt-$965M

Equity Value$14.1B

Shares Outstanding73M

Price per Share$194.70

Pure Model Fair Value

$144.03

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
10.63%	$167.53	$169.11	$170.90	$172.94	$175.29
11.63%	$153.97	$155.14	$156.43	$157.89	$159.54
12.63%	$142.19	$143.06	$144.03	$145.11	$146.31
13.63%	$131.83	$132.51	$133.25	$134.06	$134.95
14.63%	$122.66	$123.19	$123.76	$124.38	$125.06

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

$115.20

-36.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 2.29

Base Case

$144.03

-21.1% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.83

Bull Case

$172.59

-5.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.56

Key Assumptions & Drivers• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth3.80%

Year 3 Revenue Growth5.96%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin18.26%

Terminal EBIT Margin20.00%

Tax Rate29.89%

Historical Capex / Rev5.40%

Terminal Capex / Rev3.50%

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: 24x EV/EBITDA (Healthcare 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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