Dow Inc.DOWNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $133.68 per share(market-calibrated)

+336.9%

Upside to Fair Value

Current

$30.60

Pure Model

$145.73

Fair Value

$133.68

Bull Case

$171.06

Bear Case

$120.42

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.64%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $145.73.

What's Driving This Ratingfor DOW

↓

CapEx normalizing toward maintenance

Historical CapEx is 6.21% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$1.1B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 6.48% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.8B (11.63% margin).

→

Moderate revenue growth

Analyst consensus projects -1.21% revenue growth, fading to 2.25% by Year 10. Revenue reaches $49.8B (vs $40.0B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 64.00% indicates efficient cash generation. FCF reaches $5.9B by Year 10 (11.91% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.75

Market Risk Premium4.50%

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

Cost of Equity (Re)7.89%

Cost of Debt

Pre-tax Cost of Debt3.77%

Tax Rate21.00%

After-tax Cost of Debt2.98%

Equity Weight (E/V)52.63%

Debt Weight (D/V)47.37%

WACC Calculation

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

WACC = (52.63% × 7.89%) + (47.37% × 2.98%)

= 5.56%

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	$39.5B	$42.4B	$44.6B	$46.6B	$49.8B
EBIT	$2.6B	$2.7B	$3.9B	$4.8B	$5.8B
Tax	$537M	$577M	$826M	$1.0B	$1.2B
NOPAT	$2.0B	$2.2B	$3.1B	$3.8B	$4.6B
+ Depreciation	$2.8B	$3.0B	$3.1B	$3.2B	$3.5B
- Capex	$2.5B	$2.4B	$2.3B	$2.2B	$2.0B
- Δ NWC	-$56M	$156M	$114M	$119M	$127M
Free Cash Flow	$2.4B	$2.5B	$3.8B	$4.7B	$5.9B
Discount Factor	0.947	0.850	0.763	0.685	0.582
Present Value	$2.3B	$2.2B	$2.9B	$3.2B	$3.5B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.9B

Terminal Growth Rate2.25%

WACC5.56%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$183.0B

PV of Terminal Value$106.5B

Exit Multiple Method

Year 10 EBITDA$9.3B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$129.8B

PV of Terminal Value$75.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$28.5B

PV of Terminal Value$106.5B

Enterprise Value$135.0B

(-) Net Debt$15.8B

Equity Value$119.2B

Shares Outstanding712M

Price per Share$167.50

Exit Multiple Method

PV of Projected FCFs$28.5B

PV of Terminal Value$75.5B

Enterprise Value$104.0B

(-) Net Debt$15.8B

Equity Value$88.2B

Shares Outstanding712M

Price per Share$123.96

Pure Model Fair Value

$145.73

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%
3.56%	$215.49	$232.13	$221.68	$211.73	$202.24
4.56%	$160.06	$175.01	$196.42	$211.73	$202.24
5.56%	$127.83	$135.61	$145.73	$159.46	$179.11
6.56%	$106.00	$110.60	$116.26	$123.41	$132.71
7.56%	$89.86	$92.81	$96.30	$100.53	$105.73

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

$120.42

293.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.94

Base Case

$145.73

376.3% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.75

Bull Case

$171.06

459.0% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.64

Key Assumptions & Drivers• Basic Materials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-1.21%

Year 3 Revenue Growth3.28%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin6.48%

Terminal EBIT Margin13.00%

Tax Rate21.00%

Historical Capex / Rev6.21%

Terminal Capex / Rev4.00%

NWC / Revenue11.60%

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 (Basic Materials 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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