Ross Stores, Inc.ROSTNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $130.66 per share(market-calibrated)

-33.9%

Upside to Fair Value

Current

$197.64

Pure Model

$124.79

Fair Value

$130.66

Bull Case

$150.29

Bear Case

$101.33

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

6.22%

Calibrated Growth

3.81%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $124.79.

What's Driving This Ratingfor ROST

✓

CapEx already efficient

CapEx at 3.09% 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 10.16% — below the sector mature average of 12.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.7B (11.40% margin).

→

Moderate revenue growth

Analyst consensus projects -0.93% revenue growth, fading to 3.00% by Year 10. Revenue reaches $32.3B (vs $22.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $95.99/share (19.4x terminal FCF) while exit multiple gives $153.59/share (37.4x 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 higher long-term growth

To justify $197.64, the market implies 6.22% perpetual growth — 322bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 53.46% — 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)0.98

Market Risk Premium4.50%

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

Cost of Equity (Re)8.91%

Cost of Debt

Pre-tax Cost of Debt1.12%

Tax Rate24.53%

After-tax Cost of Debt0.85%

Equity Weight (E/V)92.43%

Debt Weight (D/V)7.57%

WACC Calculation

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

WACC = (92.43% × 8.91%) + (7.57% × 0.85%)

= 8.30%

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	$22.5B	$25.0B	$27.9B	$29.6B	$32.3B
EBIT	$2.3B	$2.5B	$2.8B	$3.2B	$3.7B
Tax	$562M	$624M	$695M	$785M	$903M
NOPAT	$1.7B	$1.9B	$2.1B	$2.4B	$2.8B
+ Depreciation	$422M	$469M	$523M	$554M	$605M
- Capex	$696M	$773M	$862M	$914M	$998M
- Δ NWC	-$21M	$123M	$79M	$85M	$94M
Free Cash Flow	$1.5B	$1.5B	$1.7B	$2.0B	$2.3B
Discount Factor	0.923	0.787	0.671	0.572	0.451
Present Value	$1.4B	$1.2B	$1.2B	$1.1B	$1.0B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.3B

Terminal Growth Rate3.00%

WACC8.30%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$44.5B

PV of Terminal Value$20.1B

Exit Multiple Method

Year 10 EBITDA$4.3B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$85.7B

PV of Terminal Value$38.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$11.5B

PV of Terminal Value$20.1B

Enterprise Value$31.5B

(-) Net Debt$618M

Equity Value$30.9B

Shares Outstanding322M

Price per Share$95.99

Exit Multiple Method

PV of Projected FCFs$11.5B

PV of Terminal Value$38.6B

Enterprise Value$50.1B

(-) Net Debt$618M

Equity Value$49.5B

Shares Outstanding322M

Price per Share$153.59

Pure Model Fair Value

$124.79

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%
6.30%	$155.49	$161.77	$169.95	$181.05	$196.98
7.30%	$135.13	$138.83	$143.40	$149.17	$156.69
8.30%	$119.60	$121.97	$124.79	$128.20	$132.40
9.30%	$107.13	$108.74	$110.60	$112.79	$115.38
10.30%	$96.78	$97.91	$99.20	$100.69	$102.40

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

$101.33

-48.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.23

Base Case

$124.79

-36.9% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.98

Bull Case

$150.29

-24.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.83

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.93%

Year 3 Revenue Growth5.19%

Year 5 Revenue Growth2.92%

Year 7 Revenue Growth2.95%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin10.16%

Terminal EBIT Margin12.00%

Tax Rate24.53%

Historical Capex / Rev3.09%

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 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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