Coterra Energy Inc.CTRANYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $208.26 per share(market-calibrated)

+574.0%

Upside to Fair Value

Current

$30.90

Pure Model

$222.95

Fair Value

$208.26

Bull Case

$303.33

Bear Case

$160.88

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $222.95.

What's Driving This Ratingfor CTRA

↓

CapEx normalizing toward maintenance

Historical CapEx is 63.21% of revenue (heavy investment phase). Model fades this to 5.50% by Year 10, freeing up ~$6.1B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 50.54% — below the sector mature average of 89.13%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.3B (50.54% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 173.44% in Year 1 to 1.92% by Year 5 (per analyst consensus). That's below the 2.00% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. 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 $269.40/share (29.1x terminal FCF) while exit multiple gives $176.49/share (16.7x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 83.83% indicates efficient cash generation. FCF reaches $9.7B by Year 10 (92.21% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.35

Market Risk Premium4.50%

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

Cost of Equity (Re)6.09%

Cost of Debt

Pre-tax Cost of Debt2.58%

Tax Rate24.13%

After-tax Cost of Debt1.95%

Equity Weight (E/V)85.44%

Debt Weight (D/V)14.56%

WACC Calculation

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

WACC = (85.44% × 6.09%) + (14.56% × 1.95%)

= 5.50%

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	$7.5B	$8.8B	$9.6B	$9.9B	$10.5B
EBIT	$3.8B	$4.4B	$4.8B	$5.0B	$5.3B
Tax	$917M	$1.1B	$1.2B	$1.2B	$1.3B
NOPAT	$2.9B	$3.4B	$3.7B	$3.8B	$4.0B
+ Depreciation	$4.5B	$5.2B	$5.7B	$5.9B	$6.3B
- Capex	$4.8B	$4.4B	$3.6B	$2.5B	$579M
- Δ NWC	$234M	$26M	$9M	$9M	$10M
Free Cash Flow	$2.4B	$4.1B	$5.7B	$7.2B	$9.7B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$2.2B	$3.5B	$4.4B	$5.0B	$5.7B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$9.7B

Terminal Growth Rate2.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$282.9B

PV of Terminal Value$165.6B

Exit Multiple Method

Year 10 EBITDA$11.6B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$162.1B

PV of Terminal Value$94.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$43.3B

PV of Terminal Value$165.6B

Enterprise Value$208.9B

(-) Net Debt$3.9B

Equity Value$205.0B

Shares Outstanding761M

Price per Share$269.40

Exit Multiple Method

PV of Projected FCFs$43.3B

PV of Terminal Value$94.9B

Enterprise Value$138.2B

(-) Net Debt$3.9B

Equity Value$134.3B

Shares Outstanding761M

Price per Share$176.49

Pure Model Fair Value

$222.95

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.50%	$317.20	$363.99	$348.80	$334.32	$320.52
4.50%	$242.35	$262.79	$291.40	$334.32	$320.52
5.50%	$197.93	$208.88	$222.95	$241.70	$267.97
6.50%	$167.70	$174.28	$182.32	$192.37	$205.30
7.50%	$145.36	$149.62	$154.66	$160.71	$168.11

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

$160.88

420.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.44

Base Case

$222.95

621.5% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.35

Bull Case

$303.33

881.6% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Energy Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth173.44%

Year 3 Revenue Growth6.52%

Year 5 Revenue Growth1.92%

Year 7 Revenue Growth1.95%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin50.54%

Terminal EBIT Margin89.13%

Tax Rate24.13%

Historical Capex / Rev63.21%

Terminal Capex / Rev5.50%

NWC / Revenue4.91%

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: 14x EV/EBITDA (Energy 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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