The Charles Schwab CorporationSCHWNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $107.01 per share(market-calibrated)

+11.8%

Upside to Fair Value

Current

$95.71

Pure Model

$108.24

Fair Value

$107.01

Bull Case

$133.63

Bear Case

$85.22

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

1.16%

Calibrated Growth

2.30%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $108.24.

What's Driving This Ratingfor SCHW

↓

CapEx normalizing toward maintenance

Historical CapEx is 2.71% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$524M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 52.50% 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.

→

Moderate revenue growth

Analyst consensus projects -4.39% revenue growth, fading to 2.50% by Year 10. Revenue reaches $43.2B (vs $27.7B today).

🎯

Market pricing in lower growth than model

The market implies only 1.16% perpetual growth — 134bps 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 75.66% indicates efficient cash generation. FCF reaches $18.4B by Year 10 (42.56% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.92

Market Risk Premium4.50%

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

Cost of Equity (Re)8.64%

Cost of Debt

Pre-tax Cost of Debt11.83%

Tax Rate22.75%

After-tax Cost of Debt9.14%

Equity Weight (E/V)84.18%

Debt Weight (D/V)15.82%

WACC Calculation

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

WACC = (84.18% × 8.64%) + (15.82% × 9.14%)

= 8.72%

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	$26.5B	$31.6B	$36.1B	$39.4B	$43.2B
EBIT	$13.9B	$16.6B	$18.9B	$20.7B	$22.7B
Tax	$3.2B	$3.8B	$4.3B	$4.7B	$5.2B
NOPAT	$10.7B	$12.8B	$14.6B	$16.0B	$17.5B
+ Depreciation	$992M	$1.2B	$1.4B	$1.5B	$1.6B
- Capex	$718M	$772M	$784M	$751M	$648M
- Δ NWC	-$121M	$260M	$187M	$162M	$105M
Free Cash Flow	$11.1B	$13.0B	$15.0B	$16.6B	$18.4B
Discount Factor	0.920	0.778	0.658	0.557	0.434
Present Value	$10.2B	$10.1B	$9.9B	$9.2B	$8.0B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$18.4B

Terminal Growth Rate2.50%

WACC8.72%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$303.3B

PV of Terminal Value$131.5B

Exit Multiple Method

Year 10 EBITDA$24.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$291.7B

PV of Terminal Value$126.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$94.4B

PV of Terminal Value$131.5B

Enterprise Value$225.9B

(-) Net Debt$31.6B

Equity Value$194.3B

Shares Outstanding1.8B

Price per Share$109.66

Exit Multiple Method

PV of Projected FCFs$94.4B

PV of Terminal Value$126.5B

Enterprise Value$220.8B

(-) Net Debt$31.6B

Equity Value$189.3B

Shares Outstanding1.8B

Price per Share$106.82

Pure Model Fair Value

$108.24

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%
6.72%	$136.71	$142.59	$149.86	$159.09	$171.19
7.72%	$117.57	$121.31	$125.77	$131.18	$137.87
8.72%	$102.78	$105.31	$108.24	$111.68	$115.78
9.72%	$90.88	$92.65	$94.68	$97.00	$99.70
10.72%	$81.01	$82.30	$83.75	$85.39	$87.25

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

$85.22

-11.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.15

Base Case

$108.24

13.1% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.92

Bull Case

$133.63

39.6% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.78

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-4.39%

Year 3 Revenue Growth8.95%

Year 5 Revenue Growth5.46%

Year 7 Revenue Growth4.28%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin52.50%

Tax Rate22.75%

Historical Capex / Rev2.71%

Terminal Capex / Rev1.50%

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: 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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