Brown & Brown, Inc.BRONYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $111.97 per share(market-calibrated)

+55.2%

Upside to Fair Value

Current

$72.16

Pure Model

$120.94

Fair Value

$111.97

Bull Case

$162.53

Bear Case

$88.63

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: $120.94.

What's Driving This Ratingfor BRO

✓

CapEx already efficient

CapEx at 1.06% 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 29.57% 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 20.71% 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 $143.90/share (26.0x terminal FCF) while exit multiple gives $97.97/share (15.6x 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 77.04% indicates efficient cash generation. FCF reaches $2.6B by Year 10 (25.72% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.80

Market Risk Premium4.50%

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

Cost of Equity (Re)8.09%

Cost of Debt

Pre-tax Cost of Debt2.29%

Tax Rate22.17%

After-tax Cost of Debt1.78%

Equity Weight (E/V)73.86%

Debt Weight (D/V)26.14%

WACC Calculation

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

WACC = (73.86% × 8.09%) + (26.14% × 1.78%)

= 6.44%

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	$7.2B	$8.2B	$8.8B	$9.2B	$9.9B
EBIT	$2.1B	$2.4B	$2.6B	$2.7B	$2.9B
Tax	$471M	$537M	$575M	$604M	$650M
NOPAT	$1.7B	$1.9B	$2.0B	$2.1B	$2.3B
+ Depreciation	$274M	$312M	$334M	$351M	$378M
- Capex	$76M	$87M	$93M	$98M	$105M
- Δ NWC	$22M	$9M	$4M	$4M	$4M
Free Cash Flow	$1.8B	$2.1B	$2.3B	$2.4B	$2.6B
Discount Factor	0.939	0.829	0.732	0.646	0.536
Present Value	$1.7B	$1.7B	$1.6B	$1.5B	$1.4B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.6B

Terminal Growth Rate2.50%

WACC6.44%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$66.3B

PV of Terminal Value$35.5B

Exit Multiple Method

Year 10 EBITDA$3.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$39.7B

PV of Terminal Value$21.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$15.9B

PV of Terminal Value$35.5B

Enterprise Value$51.4B

(-) Net Debt$6.8B

Equity Value$44.6B

Shares Outstanding310M

Price per Share$143.90

Exit Multiple Method

PV of Projected FCFs$15.9B

PV of Terminal Value$21.3B

Enterprise Value$37.2B

(-) Net Debt$6.8B

Equity Value$30.4B

Shares Outstanding310M

Price per Share$97.97

Pure Model Fair Value

$120.94

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%
4.44%	$168.18	$187.54	$211.66	$202.60	$193.95
5.44%	$132.03	$141.44	$154.04	$171.80	$193.95
6.44%	$108.90	$114.24	$120.94	$129.58	$141.15
7.44%	$92.41	$95.75	$99.75	$104.66	$110.82
8.44%	$79.83	$82.05	$84.64	$87.71	$91.39

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

$88.63

22.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.00

Base Case

$120.94

67.6% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.80

Bull Case

$162.53

125.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.68

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth20.71%

Year 3 Revenue Growth6.50%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin29.57%

Tax Rate22.17%

Historical Capex / Rev1.06%

NWC / Revenue1.82%

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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