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.