The Estée Lauder Companies Inc.ELNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $99.82 per share(market-calibrated)

+0.0%

Upside to Fair Value

Current

$99.79

Pure Model

$98.59

Fair Value

$99.82

Bull Case

$126.89

Bear Case

$73.57

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

3.69%

Calibrated Growth

2.68%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $98.59.

What's Driving This Ratingfor EL

↓

CapEx normalizing toward maintenance

Historical CapEx is 9.08% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$1.3B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 10.59% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.1B (14.23% margin).

→

Moderate revenue growth

Analyst consensus projects 4.88% revenue growth, fading to 2.50% by Year 10. Revenue reaches $21.6B (vs $14.3B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $79.39/share (18.7x terminal FCF) while exit multiple gives $117.78/share (28.9x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.50% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $99.79, the market implies 3.69% perpetual growth — 119bps above the model's 2.50%. 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 69.12% indicates efficient cash generation. FCF reaches $2.9B by Year 10 (13.47% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.11

Market Risk Premium4.50%

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

Cost of Equity (Re)9.48%

Cost of Debt

Pre-tax Cost of Debt2.92%

Tax Rate21.00%

After-tax Cost of Debt2.30%

Equity Weight (E/V)79.20%

Debt Weight (D/V)20.80%

WACC Calculation

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

WACC = (79.20% × 9.48%) + (20.80% × 2.30%)

= 7.99%

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	$15.0B	$16.3B	$18.1B	$19.7B	$21.6B
EBIT	$1.6B	$1.7B	$1.9B	$2.5B	$3.1B
Tax	$333M	$363M	$403M	$520M	$645M
NOPAT	$1.3B	$1.4B	$1.5B	$2.0B	$2.4B
+ Depreciation	$787M	$857M	$952M	$1.0B	$1.1B
- Capex	$1.4B	$1.3B	$1.2B	$992M	$648M
- Δ NWC	$8M	$8M	$10M	$9M	$6M
Free Cash Flow	$673M	$953M	$1.3B	$2.0B	$2.9B
Discount Factor	0.926	0.794	0.681	0.584	0.464
Present Value	$623M	$757M	$887M	$1.2B	$1.3B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.9B

Terminal Growth Rate2.50%

WACC7.99%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$54.3B

PV of Terminal Value$25.2B

Exit Multiple Method

Year 10 EBITDA$4.2B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$84.1B

PV of Terminal Value$39.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$9.9B

PV of Terminal Value$25.2B

Enterprise Value$35.1B

(-) Net Debt$6.5B

Equity Value$28.6B

Shares Outstanding360M

Price per Share$79.39

Exit Multiple Method

PV of Projected FCFs$9.9B

PV of Terminal Value$39.0B

Enterprise Value$48.9B

(-) Net Debt$6.5B

Equity Value$42.4B

Shares Outstanding360M

Price per Share$117.78

Pure Model Fair Value

$98.59

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%
5.99%	$129.26	$135.96	$144.57	$156.07	$172.20
6.99%	$108.56	$112.58	$117.50	$123.65	$131.57
7.99%	$92.90	$95.51	$98.59	$102.28	$106.81
8.99%	$80.45	$82.23	$84.28	$86.68	$89.52
9.99%	$70.21	$71.47	$72.91	$74.55	$76.44

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

$73.57

-26.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.38

Base Case

$98.59

-1.2% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.11

Bull Case

$126.89

27.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.94

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.88%

Year 3 Revenue Growth4.60%

Year 5 Revenue Growth5.18%

Year 7 Revenue Growth4.11%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin10.59%

Terminal EBIT Margin16.00%

Tax Rate21.00%

Historical Capex / Rev9.08%

Terminal Capex / Rev3.00%

NWC / Revenue1.15%

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: 20x EV/EBITDA (Consumer Defensive 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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