Principal Financial Group, Inc.PFGNASDAQ
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $300.93 per share(market-calibrated)
+222.5%
Upside to Fair Value
Current
$93.32
Pure Model
$319.14
Fair Value
$300.93
Bull Case
$405.31
Bear Case
$248.86
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: $319.14.
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 $368.56/share (22.4x terminal FCF) while exit multiple gives $269.73/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)83.36%
Debt Weight (D/V)16.64%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (83.36% × 8.47%) + (16.64% × 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$117.3B
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$368.56
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$269.73
Pure Model Fair Value
$319.14
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% | $418.09 | $451.97 | $499.03 | $568.83 | $561.48 |
| 6.07% | $344.62 | $362.95 | $386.41 | $417.52 | $460.74 |
| 7.07% | $294.52 | $305.62 | $319.14 | $335.99 | $357.56 |
| 8.07% | $257.52 | $264.75 | $273.27 | $283.48 | $295.92 |
| 9.07% | $228.71 | $233.66 | $239.37 | $246.02 | $253.87 |
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
$248.86
166.7% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 1.10
Base Case
$319.14
242.0% vs current
- • Analyst consensus
- • Terminal growth: 2.5%
- • Beta: 0.88
Bull Case
$405.31
334.3% 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.