Fifth Third BancorpFITBNASDAQ

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $48.03 per share(market-calibrated)

-3.3%

Upside to Fair Value

Current

$49.65

Pure Model

$47.63

Fair Value

$48.03

Bull Case

$55.82

Bear Case

$39.32

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

3.90%

Calibrated Growth

2.71%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $47.63.

What's Driving This Ratingfor FITB

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.09% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$457M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 29.96% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 0.71% revenue growth, fading to 2.50% by Year 10. Revenue reaches $17.6B (vs $12.9B today).

🎯

Market pricing in higher long-term growth

To justify $49.65, the market implies 3.90% perpetual growth — 140bps 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 75.03% indicates efficient cash generation. FCF reaches $4.3B by Year 10 (24.51% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.97

Market Risk Premium4.50%

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

Cost of Equity (Re)8.85%

Cost of Debt

Pre-tax Cost of Debt19.39%

Tax Rate21.40%

After-tax Cost of Debt15.24%

Equity Weight (E/V)69.44%

Debt Weight (D/V)30.56%

WACC Calculation

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

WACC = (69.44% × 8.85%) + (30.56% × 15.24%)

= 10.80%

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	$13.0B	$14.6B	$15.6B	$16.4B	$17.6B
EBIT	$3.9B	$4.4B	$4.7B	$4.9B	$5.3B
Tax	$831M	$937M	$998M	$1.0B	$1.1B
NOPAT	$3.1B	$3.4B	$3.7B	$3.9B	$4.1B
+ Depreciation	$351M	$396M	$421M	$443M	$477M
- Capex	$530M	$514M	$458M	$387M	$264M
- Δ NWC	$9M	$74M	$38M	$40M	$43M
Free Cash Flow	$2.9B	$3.2B	$3.6B	$3.9B	$4.3B
Discount Factor	0.903	0.735	0.599	0.488	0.358
Present Value	$2.6B	$2.4B	$2.2B	$1.9B	$1.5B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.3B

Terminal Growth Rate2.50%

WACC10.80%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$53.3B

PV of Terminal Value$19.1B

Exit Multiple Method

Year 10 EBITDA$5.8B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$69.0B

PV of Terminal Value$24.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$20.7B

PV of Terminal Value$19.1B

Enterprise Value$39.8B

(-) Net Debt$11.0B

Equity Value$28.8B

Shares Outstanding664M

Price per Share$43.38

Exit Multiple Method

PV of Projected FCFs$20.7B

PV of Terminal Value$24.7B

Enterprise Value$45.5B

(-) Net Debt$11.0B

Equity Value$34.5B

Shares Outstanding664M

Price per Share$51.87

Pure Model Fair Value

$47.63

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%
8.80%	$59.43	$60.96	$62.73	$64.81	$67.28
9.80%	$52.07	$53.15	$54.38	$55.79	$57.42
10.80%	$45.96	$46.74	$47.63	$48.62	$49.76
11.80%	$40.77	$41.36	$42.01	$42.74	$43.55
12.80%	$36.29	$36.74	$37.24	$37.78	$38.38

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

$39.32

-20.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.21

Base Case

$47.63

-4.1% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.97

Bull Case

$55.82

12.4% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.82

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.71%

Year 3 Revenue Growth5.31%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin29.96%

Tax Rate21.40%

Historical Capex / Rev4.09%

Terminal Capex / Rev1.50%

NWC / Revenue10.00%

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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