Erie Indemnity CompanyERIENASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $394.40 per share(market-calibrated)

+47.9%

Upside to Fair Value

Current

$266.75

Pure Model

$425.53

Fair Value

$394.40

Bull Case

$513.10

Bear Case

$354.70

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $425.53.

What's Driving This Ratingfor ERIE

↓

CapEx normalizing toward maintenance

Historical CapEx is 2.70% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$64M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 17.69% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.5B (28.00% margin).

→

Moderate revenue growth

Historical trends suggest 3.14% revenue growth, fading to 2.50% by Year 10. Revenue reaches $5.3B (vs $4.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $504.39/share (27.9x terminal FCF) while exit multiple gives $346.67/share (16.2x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.16% indicates efficient cash generation. FCF reaches $1.1B by Year 10 (21.56% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.37

Market Risk Premium4.50%

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

Cost of Equity (Re)6.17%

Cost of Debt

Pre-tax Cost of Debt5.00%

Tax Rate21.29%

After-tax Cost of Debt3.94%

Equity Weight (E/V)100.00%

Debt Weight (D/V)0.00%

WACC Calculation

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

WACC = (100.00% × 6.17%) + (0.00% × 3.94%)

= 6.17%

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	$4.2B	$4.4B	$4.6B	$4.9B	$5.3B
EBIT	$742M	$881M	$1.0B	$1.2B	$1.5B
Tax	$158M	$187M	$220M	$256M	$315M
NOPAT	$584M	$693M	$815M	$948M	$1.2B
+ Depreciation	$45M	$47M	$50M	$53M	$57M
- Capex	$113M	$107M	$101M	$93M	$79M
- Δ NWC	$3M	$2M	$3M	$3M	$3M
Free Cash Flow	$513M	$631M	$761M	$905M	$1.1B
Discount Factor	0.942	0.835	0.741	0.657	0.549
Present Value	$483M	$527M	$564M	$595M	$627M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.1B

Terminal Growth Rate2.50%

WACC6.17%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$31.8B

PV of Terminal Value$17.5B

Exit Multiple Method

Year 10 EBITDA$1.5B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$18.5B

PV of Terminal Value$10.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$5.7B

PV of Terminal Value$17.5B

Enterprise Value$23.1B

(-) Net Debt-$346M

Equity Value$23.5B

Shares Outstanding47M

Price per Share$504.39

Exit Multiple Method

PV of Projected FCFs$5.7B

PV of Terminal Value$10.1B

Enterprise Value$15.8B

(-) Net Debt-$346M

Equity Value$16.1B

Shares Outstanding47M

Price per Share$346.67

Pure Model Fair Value

$425.53

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%
4.17%	$583.74	$656.68	$672.59	$646.01	$620.66
5.17%	$459.78	$493.15	$538.99	$605.91	$620.66
6.17%	$383.92	$402.23	$425.53	$456.17	$498.27
7.17%	$331.33	$342.51	$356.09	$372.92	$394.34
8.17%	$291.99	$299.32	$307.94	$318.23	$330.72

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

$354.70

33.0% vs current

• -25% vs historical growth trends
• Terminal growth: 2.0%
• Beta: 0.46

Base Case

$425.53

59.5% vs current

• Historical growth trends
• Terminal growth: 2.5%
• Beta: 0.37

Bull Case

$513.10

92.4% vs current

• +25% vs historical growth trends
• Terminal growth: 3.0%
• Beta: 0.32

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth3.14%

Year 3 Revenue Growth2.50%

Year 5 Revenue Growth2.85%

Year 7 Revenue Growth2.71%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin17.69%

Terminal EBIT Margin28.00%

Tax Rate21.29%

Historical Capex / Rev2.70%

Terminal Capex / Rev1.50%

NWC / Revenue2.17%

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: 12x EV/EBITDA (Financial Services 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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