PPG Industries, Inc.PPGNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $157.65 per share(market-calibrated)

+33.4%

Upside to Fair Value

Current

$118.18

Pure Model

$161.30

Fair Value

$157.65

Bull Case

$191.25

Bear Case

$133.52

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.81%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $161.30.

What's Driving This Ratingfor PPG

✓

CapEx already efficient

CapEx at 3.62% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects 3.25% revenue growth, fading to 2.25% by Year 10. Revenue reaches $19.6B (vs $15.9B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.68% indicates efficient cash generation. FCF reaches $2.8B by Year 10 (14.05% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.16

Market Risk Premium4.50%

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

Cost of Equity (Re)9.72%

Cost of Debt

Pre-tax Cost of Debt2.73%

Tax Rate22.40%

After-tax Cost of Debt2.12%

Equity Weight (E/V)78.22%

Debt Weight (D/V)21.78%

WACC Calculation

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

WACC = (78.22% × 9.72%) + (21.78% × 2.12%)

= 8.06%

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	$16.4B	$17.4B	$17.6B	$18.4B	$19.6B
EBIT	$3.1B	$3.3B	$3.3B	$3.5B	$3.7B
Tax	$690M	$733M	$739M	$773M	$826M
NOPAT	$2.4B	$2.5B	$2.6B	$2.7B	$2.9B
+ Depreciation	$536M	$570M	$575M	$601M	$642M
- Capex	$593M	$630M	$636M	$665M	$710M
- Δ NWC	$44M	$49M	$33M	$34M	$36M
Free Cash Flow	$2.3B	$2.4B	$2.5B	$2.6B	$2.8B
Discount Factor	0.925	0.792	0.679	0.581	0.460
Present Value	$2.1B	$1.9B	$1.7B	$1.5B	$1.3B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.8B

Terminal Growth Rate2.25%

WACC8.06%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$48.5B

PV of Terminal Value$22.3B

Exit Multiple Method

Year 10 EBITDA$4.3B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$60.6B

PV of Terminal Value$27.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$16.7B

PV of Terminal Value$22.3B

Enterprise Value$39.0B

(-) Net Debt$5.3B

Equity Value$33.7B

Shares Outstanding226M

Price per Share$148.96

Exit Multiple Method

PV of Projected FCFs$16.7B

PV of Terminal Value$27.9B

Enterprise Value$44.6B

(-) Net Debt$5.3B

Equity Value$39.3B

Shares Outstanding226M

Price per Share$173.65

Pure Model Fair Value

$161.30

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
6.06%	$203.11	$211.74	$222.64	$236.82	$256.05
7.06%	$175.14	$180.47	$186.91	$194.84	$204.86
8.06%	$153.65	$157.17	$161.30	$166.21	$172.13
9.06%	$136.39	$138.83	$141.63	$144.87	$148.67
10.06%	$122.07	$123.83	$125.80	$128.05	$130.63

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

$133.52

13.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.45

Base Case

$161.30

36.5% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.16

Bull Case

$191.25

61.8% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.99

Key Assumptions & Drivers• Basic Materials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth3.25%

Year 3 Revenue Growth3.43%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin18.79%

Tax Rate22.40%

Historical Capex / Rev3.62%

NWC / Revenue8.44%

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: 14x EV/EBITDA (Basic Materials 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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