Citigroup Inc.CNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $1.67 per share(market-calibrated)

-98.5%

Upside to Fair Value

Current

$111.41

Pure Model

$-10.78

Fair Value

$1.67

Bull Case

$-25.31

Bear Case

$-3.83

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

4.08%

Calibrated Growth

3.05%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $-10.78.

What's Driving This Ratingfor C

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.49% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$2.4B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 16.65% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $29.4B (24.28% margin).

→

Moderate revenue growth

Analyst consensus projects -46.12% revenue growth, fading to 2.50% by Year 10. Revenue reaches $121.1B (vs $168.3B today).

🎯

Market pricing in higher long-term growth

To justify $111.41, the market implies 4.08% perpetual growth — 158bps above the model's 2.50%. 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 68.37% indicates efficient cash generation. FCF reaches $21.8B by Year 10 (17.99% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.14

Market Risk Premium4.50%

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

Cost of Equity (Re)9.63%

Cost of Debt

Pre-tax Cost of Debt7.96%

Tax Rate27.10%

After-tax Cost of Debt5.80%

Equity Weight (E/V)22.08%

Debt Weight (D/V)77.92%

WACC Calculation

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

WACC = (22.08% × 9.63%) + (77.92% × 5.80%)

= 6.65%

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	$90.7B	$97.9B	$104.5B	$111.7B	$121.1B
EBIT	$15.1B	$16.3B	$17.4B	$23.2B	$29.4B
Tax	$4.1B	$4.4B	$4.7B	$6.3B	$8.0B
NOPAT	$11.0B	$11.9B	$12.7B	$16.9B	$21.4B
+ Depreciation	$1.8B	$2.0B	$2.1B	$2.3B	$2.5B
- Capex	$3.2B	$3.0B	$2.7B	$2.4B	$1.8B
- Δ NWC	-$7.8B	$361M	$376M	$350M	$295M
Free Cash Flow	$17.4B	$10.5B	$11.7B	$16.4B	$21.8B
Discount Factor	0.938	0.824	0.725	0.637	0.525
Present Value	$16.4B	$8.7B	$8.5B	$10.4B	$11.4B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$21.8B

Terminal Growth Rate2.50%

WACC6.65%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$538.5B

PV of Terminal Value$282.9B

Exit Multiple Method

Year 10 EBITDA$31.9B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$382.4B

PV of Terminal Value$200.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$104.7B

PV of Terminal Value$282.9B

Enterprise Value$387.6B

(-) Net Debt$366.2B

Equity Value$21.4B

Shares Outstanding1.8B

Price per Share$11.74

Exit Multiple Method

PV of Projected FCFs$104.7B

PV of Terminal Value$200.9B

Enterprise Value$305.6B

(-) Net Debt$366.2B

Equity Value-$60.6B

Shares Outstanding1.8B

Price per Share$-33.31

Pure Model Fair Value

$-10.78

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%
4.65%	$51.92	$75.79	$110.78	$115.17	$102.63
5.65%	$4.57	$16.64	$32.54	$54.45	$86.57
6.65%	$-26.50	$-19.49	$-10.78	$0.30	$14.91
7.65%	$-48.96	$-44.52	$-39.22	$-32.77	$-24.77
8.65%	$-66.24	$-63.26	$-59.78	$-55.70	$-50.82

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

$-3.83

-103.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.43

Base Case

$-10.78

-109.7% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.14

Bull Case

$-25.31

-122.7% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.97

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-46.12%

Year 3 Revenue Growth3.83%

Year 5 Revenue Growth3.73%

Year 7 Revenue Growth3.24%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin16.65%

Terminal EBIT Margin28.00%

Tax Rate27.10%

Historical Capex / Rev3.49%

Terminal Capex / Rev1.50%

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: 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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