Principal Financial Group, Inc.PFGNASDAQ

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

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $1,873.63 per share(market-calibrated)

+1926.6%

Upside to Fair Value

Current

$92.45

Pure Model

$1,986.85

Fair Value

$1,873.63

Bull Case

$3,087.60

Bear Case

$1,188.80

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: $1,986.85.

What's Driving This Ratingfor PFG

↓

CapEx normalizing toward maintenance

Historical CapEx is 46.78% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$10.6B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 12.90% — below the sector mature average of 5815.48%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.7B (24.04% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 9463.68% in Year 1 to 2.50% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $2,349.93/share (22.1x terminal FCF) while exit multiple gives $1,623.76/share (12.4x terminal FCF). The base case averages both methods.

🎯

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 96.88% indicates efficient cash generation. FCF reaches $33.6B by Year 10 (142.84% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.88

Market Risk Premium4.50%

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

Cost of Equity (Re)8.47%

Cost of Debt

Pre-tax Cost of Debt0.03%

Tax Rate11.33%

After-tax Cost of Debt0.03%

Equity Weight (E/V)84.16%

Debt Weight (D/V)15.84%

WACC Calculation

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

WACC = (84.16% × 8.47%) + (15.84% × 0.03%)

= 7.14%

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	$17.1B	$19.2B	$20.8B	$21.8B	$23.5B
EBIT	$2.2B	$2.5B	$3.3B	$4.4B	$5.7B
Tax	$249M	$281M	$375M	$502M	$641M
NOPAT	$2.0B	$2.2B	$2.9B	$3.9B	$5.0B
+ Depreciation	$21.0B	$23.7B	$25.6B	$26.9B	$29.0B
- Capex	$8.0B	$7.1B	$5.5B	$3.6B	$353M
- Δ NWC	$2.6B	$210M	$79M	$83M	$89M
Free Cash Flow	$12.4B	$18.7B	$23.0B	$27.2B	$33.6B
Discount Factor	0.933	0.813	0.708	0.617	0.502
Present Value	$11.6B	$15.2B	$16.3B	$16.8B	$16.9B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$33.6B

Terminal Growth Rate2.50%

WACC7.14%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$742.6B

PV of Terminal Value$372.7B

Exit Multiple Method

Year 10 EBITDA$34.7B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$416.1B

PV of Terminal Value$208.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$157.1B

PV of Terminal Value$372.7B

Enterprise Value$529.9B

(-) Net Debt-$505M

Equity Value$530.4B

Shares Outstanding226M

Price per Share$2,349.93

Exit Multiple Method

PV of Projected FCFs$157.1B

PV of Terminal Value$208.8B

Enterprise Value$366.0B

(-) Net Debt-$505M

Equity Value$366.5B

Shares Outstanding226M

Price per Share$1,623.76

Pure Model Fair Value

$1,986.85

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%
5.14%	$2,596.46	$2,804.32	$3,091.02	$3,511.92	$3,557.65
6.14%	$2,143.46	$2,256.97	$2,401.71	$2,592.59	$2,855.87
7.14%	$1,833.72	$1,902.83	$1,986.85	$2,091.18	$2,224.20
8.14%	$1,604.68	$1,649.87	$1,703.08	$1,766.65	$1,843.92
9.14%	$1,426.27	$1,457.35	$1,493.12	$1,534.72	$1,583.70

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

$1,188.80

1185.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.10

Base Case

$1,986.85

2049.1% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.88

Bull Case

$3,087.60

3239.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.75

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth9463.68%

Year 3 Revenue Growth7.55%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin12.90%

Terminal EBIT Margin5815.48%

Tax Rate11.33%

Historical Capex / Rev46.78%

Terminal Capex / Rev1.50%

NWC / Revenue15.54%

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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