Northern Trust CorporationNTRSNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $336.29 per share(market-calibrated)

+131.8%

Upside to Fair Value

Current

$145.07

Pure Model

$337.48

Fair Value

$336.29

Bull Case

$330.62

Bear Case

$339.79

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: $337.48.

What's Driving This Ratingfor NTRS

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.82% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$256M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 19.78% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.8B (25.85% margin).

→

Moderate revenue growth

Analyst consensus projects -40.01% revenue growth, fading to 2.50% by Year 10. Revenue reaches $11.0B (vs $14.3B today).

🎯

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 72.29% indicates efficient cash generation. FCF reaches $2.4B by Year 10 (21.92% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.28

Market Risk Premium4.50%

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

Cost of Equity (Re)10.24%

Cost of Debt

Pre-tax Cost of Debt24.54%

Tax Rate25.76%

After-tax Cost of Debt18.22%

Equity Weight (E/V)62.35%

Debt Weight (D/V)37.65%

WACC Calculation

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

WACC = (62.35% × 10.24%) + (37.65% × 18.22%)

= 13.25%

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	$8.6B	$9.5B	$9.7B	$10.2B	$11.0B
EBIT	$1.7B	$1.9B	$2.1B	$2.4B	$2.8B
Tax	$437M	$482M	$536M	$626M	$732M
NOPAT	$1.3B	$1.4B	$1.5B	$1.8B	$2.1B
+ Depreciation	$384M	$423M	$435M	$457M	$492M
- Capex	$328M	$313M	$271M	$232M	$165M
- Δ NWC	-$572M	$50M	$24M	$25M	$27M
Free Cash Flow	$1.9B	$1.4B	$1.7B	$2.0B	$2.4B
Discount Factor	0.883	0.689	0.537	0.419	0.288
Present Value	$1.7B	$997M	$905M	$839M	$695M

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 Rate2.50%

WACC13.25%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$23.0B

PV of Terminal Value$6.6B

Exit Multiple Method

Year 10 EBITDA$3.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$40.0B

PV of Terminal Value$11.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$9.5B

PV of Terminal Value$6.6B

Enterprise Value$16.1B

(-) Net Debt-$44.7B

Equity Value$60.8B

Shares Outstanding188M

Price per Share$324.40

Exit Multiple Method

PV of Projected FCFs$9.5B

PV of Terminal Value$11.5B

Enterprise Value$21.0B

(-) Net Debt-$44.7B

Equity Value$65.7B

Shares Outstanding188M

Price per Share$350.56

Pure Model Fair Value

$337.48

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%
11.25%	$353.52	$354.89	$356.41	$358.12	$360.05
12.25%	$344.03	$345.06	$346.20	$347.46	$348.87
13.25%	$335.82	$336.61	$337.48	$338.43	$339.48
14.25%	$328.63	$329.25	$329.92	$330.66	$331.46
15.25%	$322.28	$322.77	$323.30	$323.88	$324.50

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

$339.79

134.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.59

Base Case

$337.48

132.6% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.28

Bull Case

$330.62

127.9% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 1.08

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-40.01%

Year 3 Revenue Growth5.64%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin19.78%

Terminal EBIT Margin28.00%

Tax Rate25.76%

Historical Capex / Rev3.82%

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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