Emerson Electric Co.EMRNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $92.66 per share(market-calibrated)

-36.2%

Upside to Fair Value

Current

$145.32

Pure Model

$88.11

Fair Value

$92.66

Bull Case

$109.86

Bear Case

$68.04

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.08%

Calibrated Growth

3.21%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $88.11.

What's Driving This Ratingfor EMR

✓

CapEx already efficient

CapEx at 2.58% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects 5.18% revenue growth, fading to 2.25% by Year 10. Revenue reaches $25.9B (vs $18.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $71.82/share (15.4x terminal FCF) while exit multiple gives $104.40/share (25.3x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $145.32, the market implies 6.08% perpetual growth — 383bps above the model's 2.25%. 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 71.12% indicates efficient cash generation. FCF reaches $4.4B by Year 10 (16.86% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.25

Market Risk Premium4.50%

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

Cost of Equity (Re)10.12%

Cost of Debt

Pre-tax Cost of Debt1.98%

Tax Rate23.72%

After-tax Cost of Debt1.51%

Equity Weight (E/V)85.68%

Debt Weight (D/V)14.32%

WACC Calculation

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

WACC = (85.68% × 10.12%) + (14.32% × 1.51%)

= 8.89%

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	$18.9B	$21.0B	$23.2B	$24.2B	$25.9B
EBIT	$3.3B	$3.6B	$4.0B	$4.2B	$4.5B
Tax	$773M	$857M	$946M	$989M	$1.1B
NOPAT	$2.5B	$2.8B	$3.0B	$3.2B	$3.4B
+ Depreciation	$1.2B	$1.4B	$1.5B	$1.6B	$1.7B
- Capex	$489M	$542M	$598M	$625M	$668M
- Δ NWC	$79M	$87M	$43M	$45M	$48M
Free Cash Flow	$3.2B	$3.5B	$3.9B	$4.1B	$4.4B
Discount Factor	0.918	0.775	0.653	0.551	0.427
Present Value	$2.9B	$2.7B	$2.6B	$2.3B	$1.9B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.4B

Terminal Growth Rate2.25%

WACC8.89%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$67.3B

PV of Terminal Value$28.7B

Exit Multiple Method

Year 10 EBITDA$6.1B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$110.5B

PV of Terminal Value$47.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$24.2B

PV of Terminal Value$28.7B

Enterprise Value$52.9B

(-) Net Debt$12.2B

Equity Value$40.7B

Shares Outstanding567M

Price per Share$71.82

Exit Multiple Method

PV of Projected FCFs$24.2B

PV of Terminal Value$47.2B

Enterprise Value$71.4B

(-) Net Debt$12.2B

Equity Value$59.2B

Shares Outstanding567M

Price per Share$104.40

Pure Model Fair Value

$88.11

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%
6.89%	$111.11	$114.76	$119.20	$124.71	$131.73
7.89%	$96.39	$98.77	$101.58	$104.94	$109.02
8.89%	$84.58	$86.22	$88.11	$90.31	$92.90
9.89%	$74.81	$75.98	$77.30	$78.82	$80.56
10.89%	$66.52	$67.38	$68.35	$69.43	$70.65

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

$68.04

-53.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.56

Base Case

$88.11

-39.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.25

Bull Case

$109.86

-24.4% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.06

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.18%

Year 3 Revenue Growth5.17%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin17.21%

Tax Rate23.72%

Historical Capex / Rev2.58%

NWC / Revenue8.46%

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: 18x EV/EBITDA (Industrials 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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