Packaging Corporation of AmericaPKGNYSE

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $297.47 per share(market-calibrated)

+28.2%

Upside to Fair Value

Current

$232.04

Pure Model

$301.14

Fair Value

$297.47

Bull Case

$383.44

Bear Case

$231.86

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

2.41%

Calibrated Growth

2.85%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $301.14.

What's Driving This Ratingfor PKG

↓

CapEx normalizing toward maintenance

Historical CapEx is 7.56% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$477M in annual FCF. This is the biggest driver of long-term cash flow improvement.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 11.77% in Year 1 to 3.00% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

✓

Model and market roughly agree

Market-implied terminal growth of 2.41% is close to the model's 3.00% (only 59bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 59.76% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.90

Market Risk Premium4.50%

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

Cost of Equity (Re)8.54%

Cost of Debt

Pre-tax Cost of Debt1.82%

Tax Rate24.68%

After-tax Cost of Debt1.37%

Equity Weight (E/V)82.72%

Debt Weight (D/V)17.28%

WACC Calculation

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

WACC = (82.72% × 8.54%) + (17.28% × 1.37%)

= 7.30%

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	$10.0B	$10.8B	$11.6B	$12.3B	$13.4B
EBIT	$1.5B	$1.6B	$1.7B	$1.8B	$1.9B
Tax	$359M	$386M	$414M	$439M	$479M
NOPAT	$1.1B	$1.2B	$1.3B	$1.3B	$1.5B
+ Depreciation	$577M	$620M	$664M	$705M	$770M
- Capex	$759M	$731M	$691M	$636M	$536M
- Δ NWC	$206M	$53M	$65M	$69M	$76M
Free Cash Flow	$708M	$1.0B	$1.2B	$1.3B	$1.6B
Discount Factor	0.932	0.809	0.703	0.611	0.494
Present Value	$660M	$821M	$822M	$817M	$801M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.6B

Terminal Growth Rate3.00%

WACC7.30%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$38.8B

PV of Terminal Value$19.2B

Exit Multiple Method

Year 10 EBITDA$2.7B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$54.2B

PV of Terminal Value$26.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$8.0B

PV of Terminal Value$19.2B

Enterprise Value$27.1B

(-) Net Debt$3.8B

Equity Value$23.3B

Shares Outstanding90M

Price per Share$258.78

Exit Multiple Method

PV of Projected FCFs$8.0B

PV of Terminal Value$26.8B

Enterprise Value$34.8B

(-) Net Debt$3.8B

Equity Value$30.9B

Shares Outstanding90M

Price per Share$343.51

Pure Model Fair Value

$301.14

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
5.30%	$401.26	$431.82	$475.66	$503.64	$481.57
6.30%	$329.85	$345.73	$366.42	$394.49	$434.75
7.30%	$280.21	$289.59	$301.14	$315.74	$334.75
8.30%	$242.63	$248.64	$255.77	$264.40	$275.03
9.30%	$212.63	$216.70	$221.42	$226.95	$233.52

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

$231.86

-0.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.12

Base Case

$301.14

29.8% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.90

Bull Case

$383.44

65.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.76

Key Assumptions & Drivers• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth11.77%

Year 3 Revenue Growth2.59%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin14.49%

Tax Rate24.68%

Historical Capex / Rev7.56%

Terminal Capex / Rev4.00%

NWC / Revenue19.43%

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 Cyclical 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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