Principal Financial Group, Inc.PFGNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $300.99 per share(market-calibrated)

+222.9%

Upside to Fair Value

Current

$93.22

Pure Model

$319.21

Fair Value

$300.99

Bull Case

$405.42

Bear Case

$248.90

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: $319.21.

What's Driving This Ratingfor PFG

✓

CapEx already efficient

CapEx at 0.66% 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 14.72% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.8B (24.52% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 9.46% 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 $368.67/share (22.4x terminal FCF) while exit multiple gives $269.76/share (14.0x 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 85.80% indicates efficient cash generation. FCF reaches $5.2B by Year 10 (22.24% 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 Debt0.04%

Tax Rate11.33%

After-tax Cost of Debt0.04%

Equity Weight (E/V)83.35%

Debt Weight (D/V)16.65%

WACC Calculation

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

WACC = (83.35% × 8.47%) + (16.65% × 0.04%)

= 7.07%

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	$2.5B	$2.8B	$3.6B	$4.6B	$5.8B
Tax	$285M	$321M	$409M	$525M	$654M
NOPAT	$2.2B	$2.5B	$3.2B	$4.1B	$5.1B
+ Depreciation	$241M	$271M	$293M	$307M	$331M
- Capex	$113M	$127M	$137M	$144M	$155M
- Δ NWC	$148M	$132M	$51M	$53M	$57M
Free Cash Flow	$2.2B	$2.5B	$3.3B	$4.2B	$5.2B
Discount Factor	0.934	0.815	0.711	0.620	0.505
Present Value	$2.1B	$2.1B	$2.4B	$2.6B	$2.6B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.2B

Terminal Growth Rate2.50%

WACC7.07%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$117.4B

PV of Terminal Value$59.3B

Exit Multiple Method

Year 10 EBITDA$6.1B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$73.2B

PV of Terminal Value$37.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$23.7B

PV of Terminal Value$59.3B

Enterprise Value$83.0B

(-) Net Debt-$227M

Equity Value$83.2B

Shares Outstanding226M

Price per Share$368.67

Exit Multiple Method

PV of Projected FCFs$23.7B

PV of Terminal Value$37.0B

Enterprise Value$60.7B

(-) Net Debt-$227M

Equity Value$60.9B

Shares Outstanding226M

Price per Share$269.76

Pure Model Fair Value

$319.21

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%
5.07%	$418.21	$452.12	$499.23	$569.11	$561.48
6.07%	$344.69	$363.04	$386.52	$417.66	$460.92
7.07%	$294.58	$305.68	$319.21	$336.07	$357.66
8.07%	$257.56	$264.79	$273.32	$283.53	$295.98
9.07%	$228.74	$233.70	$239.41	$246.07	$253.92

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

$248.90

167.0% vs current

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

Base Case

$319.21

242.4% vs current

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

Bull Case

$405.42

334.9% 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 Growth9.46%

Year 3 Revenue Growth7.36%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin14.72%

Terminal EBIT Margin28.00%

Tax Rate11.33%

Historical Capex / Rev0.66%

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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