The Procter & Gamble CompanyPGNYSE

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $206.83 per share(market-calibrated)

+29.5%

Upside to Fair Value

Current

$159.72

Pure Model

$218.21

Fair Value

$206.83

Bull Case

$266.57

Bear Case

$180.00

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.57%

Calibrated Growth

2.02%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $218.21.

What's Driving This Ratingfor PG

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.82% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$950M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 26.40% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 2.84% revenue growth, fading to 2.50% by Year 10. Revenue reaches $115.8B (vs $84.3B today).

🎯

Market pricing in lower growth than model

The market implies only 0.57% perpetual growth — 193bps 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 71.02% indicates efficient cash generation. FCF reaches $24.4B by Year 10 (21.11% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.38

Market Risk Premium4.50%

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

Cost of Equity (Re)6.21%

Cost of Debt

Pre-tax Cost of Debt1.99%

Tax Rate20.34%

After-tax Cost of Debt1.59%

Equity Weight (E/V)91.70%

Debt Weight (D/V)8.30%

WACC Calculation

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

WACC = (91.70% × 6.21%) + (8.30% × 1.59%)

= 5.83%

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	$86.7B	$92.1B	$99.8B	$106.7B	$115.8B
EBIT	$22.9B	$24.3B	$26.4B	$28.2B	$30.6B
Tax	$4.7B	$4.9B	$5.4B	$5.7B	$6.2B
NOPAT	$18.2B	$19.4B	$21.0B	$22.4B	$24.3B
+ Depreciation	$2.9B	$3.1B	$3.3B	$3.5B	$3.8B
- Capex	$3.3B	$3.4B	$3.5B	$3.5B	$3.5B
- Δ NWC	$239M	$304M	$363M	$337M	$282M
Free Cash Flow	$17.6B	$18.8B	$20.5B	$22.2B	$24.4B
Discount Factor	0.945	0.844	0.753	0.673	0.568
Present Value	$16.6B	$15.8B	$15.4B	$14.9B	$13.9B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$24.4B

Terminal Growth Rate2.50%

WACC5.83%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$753.0B

PV of Terminal Value$427.4B

Exit Multiple Method

Year 10 EBITDA$34.4B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$688.1B

PV of Terminal Value$390.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$152.5B

PV of Terminal Value$427.4B

Enterprise Value$579.9B

(-) Net Debt$25.9B

Equity Value$554.0B

Shares Outstanding2.5B

Price per Share$225.71

Exit Multiple Method

PV of Projected FCFs$152.5B

PV of Terminal Value$390.6B

Enterprise Value$543.1B

(-) Net Debt$25.9B

Equity Value$517.2B

Shares Outstanding2.5B

Price per Share$210.72

Pure Model Fair Value

$218.21

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%
3.83%	$303.84	$323.93	$310.49	$297.69	$285.49
4.83%	$237.14	$254.46	$279.22	$297.69	$285.49
5.83%	$197.43	$206.47	$218.21	$234.12	$256.85
6.83%	$169.99	$175.33	$181.91	$190.21	$201.00
7.83%	$149.31	$152.74	$156.81	$161.73	$167.78

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

$180.00

12.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.47

Base Case

$218.21

36.6% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.38

Bull Case

$266.57

66.9% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.32

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth2.84%

Year 3 Revenue Growth3.41%

Year 5 Revenue Growth3.77%

Year 7 Revenue Growth3.26%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin26.40%

Tax Rate20.34%

Historical Capex / Rev3.82%

Terminal Capex / Rev3.00%

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: 20x EV/EBITDA (Consumer Defensive 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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