Allegion plcALLENYSE

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

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $180.81 per share(market-calibrated)

+11.3%

Upside to Fair Value

Current

$162.50

Pure Model

$180.71

Fair Value

$180.81

Bull Case

$219.56

Bear Case

$145.67

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

2.33%

Calibrated Growth

2.26%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $180.71.

What's Driving This Ratingfor ALLE

✓

CapEx already efficient

CapEx at 1.89% 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 23.71% 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 6.17% revenue growth, fading to 2.25% by Year 10. Revenue reaches $5.8B (vs $4.1B today).

✓

Model and market roughly agree

Market-implied terminal growth of 2.33% is close to the model's 2.25% (only 8bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 77.68% indicates efficient cash generation. FCF reaches $1.2B by Year 10 (20.50% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.04

Market Risk Premium4.50%

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

Cost of Equity (Re)9.17%

Cost of Debt

Pre-tax Cost of Debt3.71%

Tax Rate16.22%

After-tax Cost of Debt3.10%

Equity Weight (E/V)85.97%

Debt Weight (D/V)14.03%

WACC Calculation

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

WACC = (85.97% × 9.17%) + (14.03% × 3.10%)

= 8.32%

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	$4.3B	$4.7B	$5.2B	$5.4B	$5.8B
EBIT	$1.0B	$1.1B	$1.2B	$1.3B	$1.4B
Tax	$166M	$179M	$199M	$208M	$222M
NOPAT	$858M	$927M	$1.0B	$1.1B	$1.1B
+ Depreciation	$116M	$125M	$138M	$145M	$155M
- Capex	$81M	$88M	$98M	$102M	$109M
- Δ NWC	$18M	$11M	$8M	$9M	$9M
Free Cash Flow	$874M	$953M	$1.1B	$1.1B	$1.2B
Discount Factor	0.923	0.787	0.671	0.572	0.450
Present Value	$807M	$750M	$711M	$633M	$533M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.2B

Terminal Growth Rate2.25%

WACC8.32%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$20.0B

PV of Terminal Value$9.0B

Exit Multiple Method

Year 10 EBITDA$1.5B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$27.4B

PV of Terminal Value$12.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$6.8B

PV of Terminal Value$9.0B

Enterprise Value$15.8B

(-) Net Debt$1.9B

Equity Value$13.8B

Shares Outstanding86M

Price per Share$161.09

Exit Multiple Method

PV of Projected FCFs$6.8B

PV of Terminal Value$12.3B

Enterprise Value$19.1B

(-) Net Debt$1.9B

Equity Value$17.2B

Shares Outstanding86M

Price per Share$200.32

Pure Model Fair Value

$180.71

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
6.32%	$225.84	$234.41	$245.09	$258.75	$276.88
7.32%	$196.08	$201.48	$207.94	$215.82	$225.63
8.32%	$172.88	$176.49	$180.71	$185.67	$191.62
9.32%	$154.05	$156.58	$159.46	$162.79	$166.67
10.32%	$138.32	$140.15	$142.21	$144.54	$147.20

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

$145.67

-10.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.30

Base Case

$180.71

11.2% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.04

Bull Case

$219.56

35.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.88

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.17%

Year 3 Revenue Growth3.31%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin23.71%

Tax Rate16.22%

Historical Capex / Rev1.89%

NWC / Revenue7.20%

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: 18x EV/EBITDA (Industrials 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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