Public Service Enterprise Group IncorporatedPEGNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $85.47 per share(market-calibrated)

+1.1%

Upside to Fair Value

Current

$84.50

Pure Model

$87.08

Fair Value

$85.47

Bull Case

$109.80

Bear Case

$67.89

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

1.39%

Calibrated Growth

1.91%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $87.08.

What's Driving This Ratingfor PEG

↓

CapEx normalizing toward maintenance

Historical CapEx is 23.59% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$3.0B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 19.43% — below the sector mature average of 24.49%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.2B (19.81% margin).

→

Moderate revenue growth

Analyst consensus projects -1.80% revenue growth, fading to 2.00% by Year 10. Revenue reaches $16.1B (vs $12.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $103.28/share (28.6x terminal FCF) while exit multiple gives $70.87/share (21.1x terminal FCF). The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 1.39% is close to the model's 2.00% (only 61bps 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 75.77% indicates efficient cash generation. FCF reaches $3.7B by Year 10 (23.09% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.62

Market Risk Premium4.50%

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

Cost of Equity (Re)7.27%

Cost of Debt

Pre-tax Cost of Debt2.95%

Tax Rate11.08%

After-tax Cost of Debt2.62%

Equity Weight (E/V)63.37%

Debt Weight (D/V)36.63%

WACC Calculation

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

WACC = (63.37% × 7.27%) + (36.63% × 2.62%)

= 5.57%

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	$11.9B	$13.2B	$14.0B	$15.0B	$16.1B
EBIT	$2.3B	$2.6B	$2.7B	$3.0B	$3.2B
Tax	$257M	$284M	$302M	$327M	$354M
NOPAT	$2.1B	$2.3B	$2.4B	$2.6B	$2.8B
+ Depreciation	$1.3B	$1.4B	$1.5B	$1.6B	$1.7B
- Capex	$2.8B	$2.6B	$2.2B	$1.7B	$807M
- Δ NWC	-$21M	$63M	$53M	$45M	$30M
Free Cash Flow	$539M	$1.1B	$1.7B	$2.5B	$3.7B
Discount Factor	0.947	0.850	0.763	0.684	0.582
Present Value	$511M	$895M	$1.3B	$1.7B	$2.2B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.7B

Terminal Growth Rate2.00%

WACC5.57%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$106.5B

PV of Terminal Value$62.0B

Exit Multiple Method

Year 10 EBITDA$4.9B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$78.7B

PV of Terminal Value$45.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$13.8B

PV of Terminal Value$62.0B

Enterprise Value$75.8B

(-) Net Debt$24.2B

Equity Value$51.5B

Shares Outstanding499M

Price per Share$103.28

Exit Multiple Method

PV of Projected FCFs$13.8B

PV of Terminal Value$45.8B

Enterprise Value$59.6B

(-) Net Debt$24.2B

Equity Value$35.4B

Shares Outstanding499M

Price per Share$70.87

Pure Model Fair Value

$87.08

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.57%	$141.84	$167.45	$164.04	$155.15	$146.67
4.57%	$99.00	$110.40	$126.24	$149.73	$146.67
5.57%	$73.02	$79.18	$87.08	$97.54	$112.08
6.57%	$55.05	$58.78	$63.33	$68.99	$76.25
7.57%	$41.62	$44.05	$46.91	$50.34	$54.52

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

$67.89

-19.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.77

Base Case

$87.08

3.0% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.62

Bull Case

$109.80

29.9% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.52

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-1.80%

Year 3 Revenue Growth5.22%

Year 5 Revenue Growth4.08%

Year 7 Revenue Growth3.25%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin19.43%

Terminal EBIT Margin24.49%

Tax Rate11.08%

Historical Capex / Rev23.59%

Terminal Capex / Rev5.00%

NWC / Revenue9.59%

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: 16x EV/EBITDA (Utilities 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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