Ralph Lauren CorporationRLNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $502.03 per share(market-calibrated)

+38.8%

Upside to Fair Value

Current

$361.82

Pure Model

$508.17

Fair Value

$502.03

Bull Case

$639.65

Bear Case

$389.50

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

1.42%

Calibrated Growth

2.60%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $508.17.

What's Driving This Ratingfor RL

✓

CapEx already efficient

CapEx at 2.47% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 26.30% 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.

↑

Strong near-term revenue growth

Analyst consensus projects 12.57% revenue growth in Year 1, fading to 5.12% by Year 5 and 3.00% by Year 10. Revenue reaches $11.9B by Year 10 (vs $7.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $404.28/share (14.4x terminal FCF) while exit multiple gives $612.07/share (28.0x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 1.42% perpetual growth — 158bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.37% indicates efficient cash generation. FCF reaches $2.5B by Year 10 (21.08% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.49

Market Risk Premium4.50%

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

Cost of Equity (Re)11.20%

Cost of Debt

Pre-tax Cost of Debt1.72%

Tax Rate21.86%

After-tax Cost of Debt1.34%

Equity Weight (E/V)89.46%

Debt Weight (D/V)10.54%

WACC Calculation

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

WACC = (89.46% × 11.20%) + (10.54% × 1.34%)

= 10.16%

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	$8.0B	$8.9B	$9.9B	$10.8B	$11.9B
EBIT	$2.1B	$2.3B	$2.6B	$2.8B	$3.1B
Tax	$458M	$509M	$567M	$619M	$685M
NOPAT	$1.6B	$1.8B	$2.0B	$2.2B	$2.4B
+ Depreciation	$258M	$287M	$319M	$349M	$386M
- Capex	$197M	$218M	$243M	$266M	$294M
- Δ NWC	$74M	$35M	$40M	$37M	$29M
Free Cash Flow	$1.6B	$1.9B	$2.1B	$2.3B	$2.5B
Discount Factor	0.908	0.748	0.616	0.508	0.380
Present Value	$1.5B	$1.4B	$1.3B	$1.1B	$954M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.5B

Terminal Growth Rate3.00%

WACC10.16%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$36.1B

PV of Terminal Value$13.7B

Exit Multiple Method

Year 10 EBITDA$3.5B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$70.3B

PV of Terminal Value$26.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$12.3B

PV of Terminal Value$13.7B

Enterprise Value$26.1B

(-) Net Debt$746M

Equity Value$25.3B

Shares Outstanding63M

Price per Share$404.28

Exit Multiple Method

PV of Projected FCFs$12.3B

PV of Terminal Value$26.7B

Enterprise Value$39.1B

(-) Net Debt$746M

Equity Value$38.3B

Shares Outstanding63M

Price per Share$612.07

Pure Model Fair Value

$508.17

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%
8.16%	$612.65	$626.86	$643.82	$664.43	$689.99
9.16%	$547.31	$556.87	$567.99	$581.07	$596.68
10.16%	$493.80	$500.52	$508.17	$516.98	$527.22
11.16%	$448.80	$453.68	$459.16	$465.35	$472.41
12.16%	$410.24	$413.88	$417.91	$422.42	$427.47

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

$389.50

7.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.86

Base Case

$508.17

40.5% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.49

Bull Case

$639.65

76.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.26

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth12.57%

Year 3 Revenue Growth4.96%

Year 5 Revenue Growth5.12%

Year 7 Revenue Growth4.27%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin26.30%

Tax Rate21.86%

Historical Capex / Rev2.47%

NWC / Revenue8.33%

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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