HP Inc.HPQNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $233.19 per share(market-calibrated)

+1126.7%

Upside to Fair Value

Current

$19.01

Pure Model

$255.26

Fair Value

$233.19

Bull Case

$320.82

Bear Case

$201.74

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: $255.26.

What's Driving This Ratingfor HPQ

✓

CapEx already efficient

CapEx at 1.26% 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 7.90% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $15.2B (20.52% margin).

→

Moderate revenue growth

Analyst consensus projects 1.27% revenue growth, fading to 3.75% by Year 10. Revenue reaches $73.9B (vs $55.3B today).

🎯

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 87.80% indicates efficient cash generation. FCF reaches $14.3B by Year 10 (19.34% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.18

Market Risk Premium4.50%

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

Cost of Equity (Re)9.80%

Cost of Debt

Pre-tax Cost of Debt4.43%

Tax Rate5.21%

After-tax Cost of Debt4.20%

Equity Weight (E/V)62.30%

Debt Weight (D/V)37.70%

WACC Calculation

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

WACC = (62.30% × 9.80%) + (37.70% × 4.20%)

= 7.69%

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	$56.0B	$56.9B	$61.5B	$66.2B	$73.9B
EBIT	$4.4B	$4.5B	$7.0B	$10.8B	$15.2B
Tax	$231M	$234M	$363M	$560M	$790M
NOPAT	$4.2B	$4.3B	$6.6B	$10.2B	$14.4B
+ Depreciation	$843M	$856M	$925M	$996M	$1.1B
- Capex	$703M	$714M	$772M	$831M	$928M
- Δ NWC	$70M	$30M	$222M	$239M	$267M
Free Cash Flow	$4.3B	$4.4B	$6.5B	$10.1B	$14.3B
Discount Factor	0.929	0.801	0.690	0.595	0.477
Present Value	$4.0B	$3.5B	$4.5B	$6.0B	$6.8B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$14.3B

Terminal Growth Rate3.75%

WACC7.69%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$376.4B

PV of Terminal Value$179.5B

Exit Multiple Method

Year 10 EBITDA$16.3B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$455.8B

PV of Terminal Value$217.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$50.3B

PV of Terminal Value$179.5B

Enterprise Value$229.8B

(-) Net Debt$7.2B

Equity Value$222.6B

Shares Outstanding946M

Price per Share$235.27

Exit Multiple Method

PV of Projected FCFs$50.3B

PV of Terminal Value$217.3B

Enterprise Value$267.6B

(-) Net Debt$7.2B

Equity Value$260.4B

Shares Outstanding946M

Price per Share$275.24

Pure Model Fair Value

$255.26

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%
5.69%	$342.58	$374.61	$413.74	$396.35	$379.77
6.69%	$277.94	$293.51	$314.38	$343.80	$379.77
7.69%	$235.32	$244.16	$255.26	$269.57	$288.76
8.69%	$204.12	$209.65	$216.29	$224.43	$234.63
9.69%	$179.79	$183.47	$187.77	$192.86	$198.97

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

$201.74

961.2% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.47

Base Case

$255.26

1242.7% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.18

Bull Case

$320.82

1587.6% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.00

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth1.27%

Year 3 Revenue Growth0.53%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin7.90%

Terminal EBIT Margin25.00%

Tax Rate5.21%

Historical Capex / Rev1.26%

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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