Prudential Financial, Inc.PRUNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $555.72 per share(market-calibrated)

+462.5%

Upside to Fair Value

Current

$98.80

Pure Model

$626.57

Fair Value

$555.72

Bull Case

$734.61

Bear Case

$544.73

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: $626.57.

What's Driving This Ratingfor PRU

✓

CapEx already efficient

CapEx at 0.24% 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 6.00% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $17.1B (22.23% margin).

→

Moderate revenue growth

Analyst consensus projects -4.42% revenue growth, fading to 2.50% by Year 10. Revenue reaches $76.9B (vs $60.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $817.80/share (34.2x terminal FCF) while exit multiple gives $435.34/share (16.2x 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 74.03% indicates efficient cash generation. FCF reaches $12.8B by Year 10 (16.65% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.95

Market Risk Premium4.50%

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

Cost of Equity (Re)8.78%

Cost of Debt

Pre-tax Cost of Debt1.27%

Tax Rate22.01%

After-tax Cost of Debt0.99%

Equity Weight (E/V)51.09%

Debt Weight (D/V)48.91%

WACC Calculation

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

WACC = (51.09% × 8.78%) + (48.91% × 0.99%)

= 5.50%

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	$58.1B	$60.8B	$68.0B	$71.4B	$76.9B
EBIT	$3.5B	$3.6B	$7.1B	$11.9B	$17.1B
Tax	$767M	$802M	$1.6B	$2.6B	$3.8B
NOPAT	$2.7B	$2.8B	$5.5B	$9.3B	$13.3B
+ Depreciation	$147M	$154M	$172M	$181M	$195M
- Capex	$141M	$147M	$165M	$173M	$186M
- Δ NWC	-$775M	$225M	$479M	$503M	$541M
Free Cash Flow	$3.5B	$2.6B	$5.0B	$8.8B	$12.8B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$3.3B	$2.2B	$3.9B	$6.1B	$7.5B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$12.8B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$437.3B

PV of Terminal Value$256.0B

Exit Multiple Method

Year 10 EBITDA$17.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$207.5B

PV of Terminal Value$121.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$45.3B

PV of Terminal Value$256.0B

Enterprise Value$301.3B

(-) Net Debt$13.6B

Equity Value$287.7B

Shares Outstanding352M

Price per Share$817.80

Exit Multiple Method

PV of Projected FCFs$45.3B

PV of Terminal Value$121.4B

Enterprise Value$166.7B

(-) Net Debt$13.6B

Equity Value$153.2B

Shares Outstanding352M

Price per Share$435.34

Pure Model Fair Value

$626.57

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%
3.50%	$971.48	$929.16	$888.85	$850.43	$813.82
4.50%	$684.84	$766.45	$888.85	$850.43	$813.82
5.50%	$532.95	$573.07	$626.57	$701.47	$813.82
6.50%	$436.02	$458.96	$487.62	$524.48	$573.62
7.50%	$367.34	$381.71	$398.96	$420.05	$446.40

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

$544.73

451.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.19

Base Case

$626.57

534.2% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.95

Bull Case

$734.61

643.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.81

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-4.42%

Year 3 Revenue Growth1.30%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin6.00%

Terminal EBIT Margin28.00%

Tax Rate22.01%

Historical Capex / Rev0.24%

NWC / Revenue28.87%

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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