Carrier Global CorporationCARRNYSE

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $47.47 per share(market-calibrated)

-22.4%

Upside to Fair Value

Current

$61.17

Pure Model

$45.61

Fair Value

$47.47

Bull Case

$57.08

Bear Case

$35.03

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

5.05%

Calibrated Growth

2.95%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $45.61.

What's Driving This Ratingfor CARR

✓

CapEx already efficient

CapEx at 1.85% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 10.85% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.8B (12.44% margin).

→

Moderate revenue growth

Analyst consensus projects 1.24% revenue growth, fading to 2.25% by Year 10. Revenue reaches $30.5B (vs $21.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $37.72/share (15.8x terminal FCF) while exit multiple gives $53.49/share (24.3x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $61.17, the market implies 5.05% perpetual growth — 280bps above the model's 2.25%. 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 74.05% indicates efficient cash generation. FCF reaches $3.6B by Year 10 (11.70% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.29

Market Risk Premium4.50%

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

Cost of Equity (Re)10.30%

Cost of Debt

Pre-tax Cost of Debt2.92%

Tax Rate17.02%

After-tax Cost of Debt2.43%

Equity Weight (E/V)80.21%

Debt Weight (D/V)19.79%

WACC Calculation

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

WACC = (80.21% × 10.30%) + (19.79% × 2.43%)

= 8.74%

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	$22.0B	$24.2B	$27.3B	$28.6B	$30.5B
EBIT	$2.4B	$2.6B	$3.1B	$3.4B	$3.8B
Tax	$407M	$448M	$525M	$579M	$646M
NOPAT	$2.0B	$2.2B	$2.6B	$2.8B	$3.2B
+ Depreciation	$742M	$817M	$921M	$963M	$1.0B
- Capex	$407M	$448M	$505M	$528M	$565M
- Δ NWC	$17M	$69M	$37M	$39M	$41M
Free Cash Flow	$2.3B	$2.5B	$2.9B	$3.2B	$3.6B
Discount Factor	0.920	0.778	0.658	0.556	0.433
Present Value	$2.1B	$1.9B	$1.9B	$1.8B	$1.5B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.6B

Terminal Growth Rate2.25%

WACC8.74%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$56.3B

PV of Terminal Value$24.4B

Exit Multiple Method

Year 10 EBITDA$4.8B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$86.9B

PV of Terminal Value$37.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$18.4B

PV of Terminal Value$24.4B

Enterprise Value$42.8B

(-) Net Debt$11.1B

Equity Value$31.7B

Shares Outstanding839M

Price per Share$37.72

Exit Multiple Method

PV of Projected FCFs$18.4B

PV of Terminal Value$37.6B

Enterprise Value$56.0B

(-) Net Debt$11.1B

Equity Value$44.9B

Shares Outstanding839M

Price per Share$53.49

Pure Model Fair Value

$45.61

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%
6.74%	$58.40	$60.56	$63.20	$66.50	$70.75
7.74%	$50.12	$51.52	$53.18	$55.16	$57.59
8.74%	$43.55	$44.50	$45.61	$46.90	$48.42
9.74%	$38.14	$38.82	$39.59	$40.47	$41.49
10.74%	$33.58	$34.08	$34.64	$35.26	$35.97

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

$35.03

-42.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.61

Base Case

$45.61

-25.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.29

Bull Case

$57.08

-6.7% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.10

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth1.24%

Year 3 Revenue Growth4.86%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin10.85%

Terminal EBIT Margin13.00%

Tax Rate17.02%

Historical Capex / Rev1.85%

NWC / Revenue6.14%

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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