Gen Digital Inc.GENNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $71.36 per share(market-calibrated)

+220.9%

Upside to Fair Value

Current

$22.24

Pure Model

$79.42

Fair Value

$71.36

Bull Case

$111.52

Bear Case

$56.19

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

0.50%

Calibrated Growth

2.61%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $79.42.

What's Driving This Ratingfor GEN

✓

CapEx already efficient

CapEx at 0.27% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 37.50% — below the sector mature average of 40.91%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.7B (37.50% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 26.07% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 73.80% indicates efficient cash generation. FCF reaches $2.4B by Year 10 (33.46% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.10

Market Risk Premium4.50%

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

Cost of Equity (Re)9.45%

Cost of Debt

Pre-tax Cost of Debt4.61%

Tax Rate30.00%

After-tax Cost of Debt3.23%

Equity Weight (E/V)62.26%

Debt Weight (D/V)37.74%

WACC Calculation

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

WACC = (62.26% × 9.45%) + (37.74% × 3.23%)

= 7.10%

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	$5.0B	$5.6B	$6.1B	$6.5B	$7.3B
EBIT	$1.9B	$2.1B	$2.3B	$2.4B	$2.7B
Tax	$558M	$627M	$683M	$735M	$821M
NOPAT	$1.3B	$1.5B	$1.6B	$1.7B	$1.9B
+ Depreciation	$389M	$437M	$476M	$512M	$572M
- Capex	$13M	$15M	$16M	$18M	$20M
- Δ NWC	$103M	$33M	$22M	$24M	$26M
Free Cash Flow	$1.6B	$1.9B	$2.0B	$2.2B	$2.4B
Discount Factor	0.934	0.814	0.710	0.619	0.504
Present Value	$1.5B	$1.5B	$1.4B	$1.4B	$1.2B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.4B

Terminal Growth Rate3.75%

WACC7.10%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$75.5B

PV of Terminal Value$38.0B

Exit Multiple Method

Year 10 EBITDA$3.3B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$92.6B

PV of Terminal Value$46.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$14.0B

PV of Terminal Value$38.0B

Enterprise Value$52.0B

(-) Net Debt$7.3B

Equity Value$44.7B

Shares Outstanding617M

Price per Share$72.46

Exit Multiple Method

PV of Projected FCFs$14.0B

PV of Terminal Value$46.6B

Enterprise Value$60.6B

(-) Net Debt$7.3B

Equity Value$53.3B

Shares Outstanding617M

Price per Share$86.39

Pure Model Fair Value

$79.42

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
5.10%	$111.38	$119.25	$113.99	$108.97	$104.18
6.10%	$87.01	$93.08	$101.73	$108.97	$104.18
7.10%	$72.11	$75.29	$79.42	$85.00	$92.95
8.10%	$61.58	$63.47	$65.80	$68.72	$72.52
9.10%	$53.51	$54.73	$56.17	$57.91	$60.05

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

$56.19

152.7% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.38

Base Case

$79.42

257.2% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.10

Bull Case

$111.52

401.6% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.94

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth26.07%

Year 3 Revenue Growth6.28%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin37.50%

Terminal EBIT Margin40.91%

Tax Rate30.00%

Historical Capex / Rev0.27%

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: 28x EV/EBITDA (Technology 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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