SOLSSOLSNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $48.43 per share(market-calibrated)

-34.5%

Upside to Fair Value

Current

$73.90

Pure Model

$46.33

Fair Value

$48.43

Bull Case

$58.29

Bear Case

$34.47

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

8.31%

Calibrated Growth

3.77%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $46.33.

What's Driving This Ratingfor SOLS

↓

CapEx normalizing toward maintenance

Historical CapEx is 5.46% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$80M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 22.08% 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 3.57% revenue growth, fading to 2.25% by Year 10. Revenue reaches $5.5B (vs $3.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $34.80/share (10.8x terminal FCF) while exit multiple gives $57.86/share (23.1x terminal FCF). The 14x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $73.90, the market implies 8.31% perpetual growth — 606bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.64% indicates efficient cash generation. FCF reaches $904M by Year 10 (16.55% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)2.08

Market Risk Premium4.50%

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

Cost of Equity (Re)13.88%

Cost of Debt

Pre-tax Cost of Debt1.92%

Tax Rate30.00%

After-tax Cost of Debt1.34%

Equity Weight (E/V)82.89%

Debt Weight (D/V)17.11%

WACC Calculation

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

WACC = (82.89% × 13.88%) + (17.11% × 1.34%)

= 11.73%

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	$4.0B	$4.5B	$4.9B	$5.1B	$5.5B
EBIT	$889M	$1.0B	$1.1B	$1.1B	$1.2B
Tax	$267M	$301M	$324M	$338M	$362M
NOPAT	$622M	$703M	$755M	$789M	$844M
+ Depreciation	$210M	$237M	$255M	$266M	$285M
- Capex	$220M	$234M	$235M	$229M	$218M
- Δ NWC	$8M	$18M	$6M	$6M	$7M
Free Cash Flow	$605M	$689M	$769M	$821M	$904M
Discount Factor	0.895	0.717	0.574	0.460	0.330
Present Value	$541M	$494M	$442M	$377M	$298M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$904M

Terminal Growth Rate2.25%

WACC11.73%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$9.7B

PV of Terminal Value$3.2B

Exit Multiple Method

Year 10 EBITDA$1.5B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$20.9B

PV of Terminal Value$6.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$4.2B

PV of Terminal Value$3.2B

Enterprise Value$7.4B

(-) Net Debt$1.9B

Equity Value$5.5B

Shares Outstanding159M

Price per Share$34.80

Exit Multiple Method

PV of Projected FCFs$4.2B

PV of Terminal Value$6.9B

Enterprise Value$11.1B

(-) Net Debt$1.9B

Equity Value$9.2B

Shares Outstanding159M

Price per Share$57.86

Pure Model Fair Value

$46.33

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%
9.73%	$56.42	$57.33	$58.36	$59.54	$60.90
10.73%	$50.42	$51.09	$51.83	$52.67	$53.62
11.73%	$45.28	$45.78	$46.33	$46.94	$47.63
12.73%	$40.80	$41.19	$41.61	$42.07	$42.58
13.73%	$36.87	$37.17	$37.50	$37.85	$38.24

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

$34.47

-53.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 2.61

Base Case

$46.33

-37.3% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 2.08

Bull Case

$58.29

-21.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.77

Key Assumptions & Drivers• Basic Materials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth3.57%

Year 3 Revenue Growth7.81%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin22.08%

Tax Rate30.00%

Historical Capex / Rev5.46%

Terminal Capex / Rev4.00%

NWC / Revenue5.52%

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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