Lowe's Companies, Inc.LOWNYSE

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $297.62 per share(market-calibrated)

+15.5%

Upside to Fair Value

Current

$257.70

Pure Model

$296.22

Fair Value

$297.62

Bull Case

$353.44

Bear Case

$242.03

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

3.72%

Calibrated Growth

3.11%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $296.22.

What's Driving This Ratingfor LOW

✓

CapEx already efficient

CapEx at 2.27% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects -0.27% revenue growth, fading to 3.00% by Year 10. Revenue reaches $120.8B (vs $86.3B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $236.92/share (17.2x terminal FCF) while exit multiple gives $355.53/share (31.6x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 3.72% is close to the model's 3.00% (only 72bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.31% indicates efficient cash generation. FCF reaches $10.9B by Year 10 (9.03% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.98

Market Risk Premium4.50%

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

Cost of Equity (Re)8.90%

Cost of Debt

Pre-tax Cost of Debt13.74%

Tax Rate23.93%

After-tax Cost of Debt10.46%

Equity Weight (E/V)95.25%

Debt Weight (D/V)4.75%

WACC Calculation

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

WACC = (95.25% × 8.90%) + (4.75% × 10.46%)

= 8.97%

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	$86.1B	$96.6B	$103.9B	$110.5B	$120.8B
EBIT	$10.2B	$11.5B	$12.3B	$13.2B	$14.4B
Tax	$2.4B	$2.7B	$2.9B	$3.1B	$3.5B
NOPAT	$7.8B	$8.7B	$9.4B	$10.0B	$11.0B
+ Depreciation	$2.0B	$2.2B	$2.4B	$2.5B	$2.8B
- Capex	$2.0B	$2.2B	$2.4B	$2.5B	$2.7B
- Δ NWC	-$8M	$119M	$115M	$119M	$126M
Free Cash Flow	$7.8B	$8.6B	$9.3B	$9.9B	$10.9B
Discount Factor	0.918	0.773	0.651	0.548	0.423
Present Value	$7.2B	$6.7B	$6.1B	$5.4B	$4.6B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$10.9B

Terminal Growth Rate3.00%

WACC8.97%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$188.1B

PV of Terminal Value$79.6B

Exit Multiple Method

Year 10 EBITDA$17.2B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$344.7B

PV of Terminal Value$145.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$59.0B

PV of Terminal Value$79.6B

Enterprise Value$138.6B

(-) Net Debt$6.2B

Equity Value$132.4B

Shares Outstanding559M

Price per Share$236.92

Exit Multiple Method

PV of Projected FCFs$59.0B

PV of Terminal Value$145.9B

Enterprise Value$204.9B

(-) Net Debt$6.2B

Equity Value$198.7B

Shares Outstanding559M

Price per Share$355.53

Pure Model Fair Value

$296.22

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
6.97%	$364.13	$376.07	$391.03	$410.29	$436.02
7.97%	$320.06	$327.54	$336.52	$347.51	$361.27
8.97%	$285.42	$290.40	$296.22	$303.11	$311.37
9.97%	$257.06	$260.54	$264.52	$269.11	$274.47
10.97%	$233.22	$235.73	$238.56	$241.77	$245.44

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

$242.03

-6.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.22

Base Case

$296.22

14.9% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.98

Bull Case

$353.44

37.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.83

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.27%

Year 3 Revenue Growth3.58%

Year 5 Revenue Growth3.19%

Year 7 Revenue Growth3.11%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin11.87%

Terminal EBIT Margin12.00%

Tax Rate23.93%

Historical Capex / Rev2.27%

NWC / Revenue3.57%

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: 20x EV/EBITDA (Consumer Cyclical 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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