Citizens Financial Group, Inc.CFGNYSE
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DCF Valuation
DCF Valuation Summary
Hold
Fair Value: $64.41 per share(market-calibrated)
+7.0%
Upside to Fair Value
Current
$60.20
Pure Model
$64.30
Fair Value
$64.41
Bull Case
$67.53
Bear Case
$59.88
Market Reality Check
Model Terminal Growth
2.50%
Market-Implied Growth
3.07%
Calibrated Growth
2.59%
Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $64.30.
What's Driving This Ratingfor CFG
✓
CapEx already efficient
CapEx at 1.29% 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 24.94% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.3B (27.36% margin).
→
Moderate revenue growth
Analyst consensus projects -18.48% revenue growth, fading to 2.50% by Year 10. Revenue reaches $12.2B (vs $11.1B today).
✓
Model and market roughly agree
Market-implied terminal growth of 3.07% is close to the model's 2.50% (only 57bps 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 77.03% indicates efficient cash generation. FCF reaches $3.0B by Year 10 (24.73% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)1.08
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)9.38%
Cost of Debt
Pre-tax Cost of Debt24.31%
Tax Rate21.35%
After-tax Cost of Debt19.12%
Equity Weight (E/V)69.71%
Debt Weight (D/V)30.29%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (69.71% × 9.38%) + (30.29% × 19.12%)
= 12.33%
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 | $9.1B | $10.2B | $10.8B | $11.3B | $12.2B |
| EBIT | $2.3B | $2.5B | $2.8B | $3.0B | $3.3B |
| Tax | $484M | $543M | $600M | $647M | $713M |
| NOPAT | $1.8B | $2.0B | $2.2B | $2.4B | $2.6B |
| + Depreciation | $431M | $484M | $512M | $538M | $579M |
| - Capex | $117M | $131M | $139M | $146M | $157M |
| - Δ NWC | -$206M | $38M | $26M | $28M | $30M |
| Free Cash Flow | $2.3B | $2.3B | $2.6B | $2.7B | $3.0B |
| Discount Factor | 0.890 | 0.705 | 0.559 | 0.443 | 0.313 |
| Present Value | $2.1B | $1.6B | $1.4B | $1.2B | $944M |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$3.0B
Terminal Growth Rate2.50%
WACC12.33%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$31.5B
PV of Terminal Value$9.8B
Exit Multiple Method
Year 10 EBITDA$3.9B
Exit Multiple (EV/EBITDA)12.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$47.0B
PV of Terminal Value$14.7B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$14.0B
PV of Terminal Value$9.8B
Enterprise Value$23.9B
(-) Net Debt-$1.4B
Equity Value$25.3B
Shares Outstanding431M
Price per Share$58.66
Exit Multiple Method
PV of Projected FCFs$14.0B
PV of Terminal Value$14.7B
Enterprise Value$28.7B
(-) Net Debt-$1.4B
Equity Value$30.2B
Shares Outstanding431M
Price per Share$69.93
Pure Model Fair Value
$64.30
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% |
|---|---|---|---|---|---|
| 10.33% | $74.29 | $75.27 | $76.38 | $77.63 | $79.08 |
| 11.33% | $68.28 | $69.01 | $69.82 | $70.72 | $71.74 |
| 12.33% | $63.14 | $63.69 | $64.30 | $64.97 | $65.71 |
| 13.33% | $58.68 | $59.10 | $59.57 | $60.07 | $60.63 |
| 14.33% | $54.77 | $55.10 | $55.46 | $55.85 | $56.27 |
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
$59.88
-0.5% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 1.36
Base Case
$64.30
6.8% vs current
- • Analyst consensus
- • Terminal growth: 2.5%
- • Beta: 1.08
Bull Case
$67.53
12.2% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.0%
- • Beta: 0.92
Key Assumptions & Drivers• Financial Services Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth-18.48%
Year 3 Revenue Growth3.87%
Year 5 Revenue Growth2.50%
Year 7 Revenue Growth2.50%
Year 10 Revenue Growth2.50%
Terminal Growth Rate2.50%
Margin & Efficiency
Current EBIT Margin24.94%
Terminal EBIT Margin28.00%
Tax Rate21.35%
Historical Capex / Rev1.29%
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.