Arista Networks, Inc.ANETNYSE

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

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $122.70 per share(market-calibrated)

-5.1%

Upside to Fair Value

Current

$129.30

Pure Model

$120.85

Fair Value

$122.70

Bull Case

$170.27

Bear Case

$82.30

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

7.08%

Calibrated Growth

4.25%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $120.85.

What's Driving This Ratingfor ANET

✓

CapEx already efficient

CapEx at 0.66% 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 54.52% 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.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 26.91% in Year 1 to 3.75% 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 $86.79/share (14.3x terminal FCF) while exit multiple gives $154.90/share (35.1x 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 higher long-term growth

To justify $129.30, the market implies 7.08% perpetual growth — 333bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 79.70% indicates efficient cash generation. FCF reaches $11.7B by Year 10 (44.02% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.44

Market Risk Premium4.50%

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

Cost of Equity (Re)11.00%

Cost of Debt

Pre-tax Cost of Debt5.00%

Tax Rate17.37%

After-tax Cost of Debt4.13%

Equity Weight (E/V)100.00%

Debt Weight (D/V)0.00%

WACC Calculation

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

WACC = (100.00% × 11.00%) + (0.00% × 4.13%)

= 11.00%

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	$11.4B	$17.0B	$22.1B	$23.8B	$26.5B
EBIT	$6.2B	$9.2B	$12.0B	$13.0B	$14.5B
Tax	$1.1B	$1.6B	$2.1B	$2.3B	$2.5B
NOPAT	$5.1B	$7.6B	$9.9B	$10.7B	$12.0B
+ Depreciation	$81M	$120M	$156M	$168M	$188M
- Capex	$75M	$111M	$145M	$156M	$174M
- Δ NWC	$727M	$903M	$239M	$258M	$288M
Free Cash Flow	$4.4B	$6.7B	$9.7B	$10.5B	$11.7B
Discount Factor	0.901	0.731	0.594	0.482	0.352
Present Value	$4.0B	$4.9B	$5.8B	$5.0B	$4.1B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$11.7B

Terminal Growth Rate3.75%

WACC11.00%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$167.2B

PV of Terminal Value$58.9B

Exit Multiple Method

Year 10 EBITDA$14.7B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$410.5B

PV of Terminal Value$144.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$48.3B

PV of Terminal Value$58.9B

Enterprise Value$107.2B

(-) Net Debt-$2.0B

Equity Value$109.2B

Shares Outstanding1.3B

Price per Share$86.79

Exit Multiple Method

PV of Projected FCFs$48.3B

PV of Terminal Value$144.6B

Enterprise Value$192.9B

(-) Net Debt-$2.0B

Equity Value$194.9B

Shares Outstanding1.3B

Price per Share$154.90

Pure Model Fair Value

$120.85

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%
9.00%	$145.23	$148.21	$151.75	$156.04	$161.34
10.00%	$130.22	$132.24	$134.57	$137.32	$140.58
11.00%	$117.81	$119.23	$120.85	$122.70	$124.86
12.00%	$107.29	$108.32	$109.48	$110.79	$112.28
13.00%	$98.21	$98.99	$99.85	$100.80	$101.87

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

$82.30

-36.4% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.80

Base Case

$120.85

-6.5% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.44

Bull Case

$170.27

31.7% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.23

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth26.91%

Year 3 Revenue Growth21.58%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin54.52%

Tax Rate17.37%

Historical Capex / Rev0.66%

NWC / Revenue30.00%

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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