State Street CorporationSTTNYSE
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DCF Valuation
DCF Valuation Summary
Strong Sell
Fair Value: $32.01 per share(market-calibrated)
-74.7%
Upside to Fair Value
Current
$126.76
Pure Model
$23.08
Fair Value
$32.01
Bull Case
$24.10
Bear Case
$17.98
Market Reality Check
Model Terminal Growth
2.50%
Market-Implied Growth
8.89%
Calibrated Growth
4.74%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $23.08.
What's Driving This Ratingfor STT
↓
CapEx normalizing toward maintenance
Historical CapEx is 4.19% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$518M in annual FCF. This is the biggest driver of long-term cash flow improvement.
↑
Margin expansion modeled
Current EBIT margin is 19.36% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $4.9B (25.73% margin).
→
Moderate revenue growth
Analyst consensus projects -28.88% revenue growth, fading to 2.50% by Year 10. Revenue reaches $19.2B (vs $20.7B today).
↔
Perpetuity and exit methods disagree
Perpetuity growth gives $10.27/share (10.7x terminal FCF) while exit multiple gives $35.90/share (15.7x terminal FCF). The 12x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.50% growth is more conservative. The base case averages both methods.
🎯
Market pricing in higher long-term growth
To justify $126.76, the market implies 8.89% perpetual growth — 639bps above the model's 2.50%. 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 76.37% indicates efficient cash generation. FCF reaches $4.5B by Year 10 (23.16% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)1.42
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)10.87%
Cost of Debt
Pre-tax Cost of Debt17.25%
Tax Rate21.07%
After-tax Cost of Debt13.62%
Equity Weight (E/V)54.36%
Debt Weight (D/V)45.64%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (54.36% × 10.87%) + (45.64% × 13.62%)
= 12.12%
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 | $14.7B | $16.1B | $17.0B | $17.9B | $19.2B |
| EBIT | $2.8B | $3.1B | $3.6B | $4.2B | $4.9B |
| Tax | $600M | $659M | $755M | $887M | $1.0B |
| NOPAT | $2.2B | $2.5B | $2.8B | $3.3B | $3.9B |
| + Depreciation | $676M | $742M | $780M | $820M | $883M |
| - Capex | $618M | $581M | $509M | $428M | $288M |
| - Δ NWC | -$598M | $79M | $41M | $44M | $47M |
| Free Cash Flow | $2.9B | $2.5B | $3.1B | $3.7B | $4.5B |
| Discount Factor | 0.892 | 0.709 | 0.564 | 0.449 | 0.318 |
| Present Value | $2.6B | $1.8B | $1.7B | $1.6B | $1.4B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$4.5B
Terminal Growth Rate2.50%
WACC12.12%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$47.4B
PV of Terminal Value$15.1B
Exit Multiple Method
Year 10 EBITDA$5.8B
Exit Multiple (EV/EBITDA)12.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$70.0B
PV of Terminal Value$22.3B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$17.6B
PV of Terminal Value$15.1B
Enterprise Value$32.7B
(-) Net Debt$29.8B
Equity Value$2.9B
Shares Outstanding280M
Price per Share$10.27
Exit Multiple Method
PV of Projected FCFs$17.6B
PV of Terminal Value$22.3B
Enterprise Value$39.9B
(-) Net Debt$29.8B
Equity Value$10.1B
Shares Outstanding280M
Price per Share$35.90
Pure Model Fair Value
$23.08
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% |
|---|---|---|---|---|---|
| 10.12% | $45.74 | $48.13 | $50.82 | $53.89 | $57.43 |
| 11.12% | $32.00 | $33.75 | $35.70 | $37.90 | $40.38 |
| 12.12% | $20.31 | $21.63 | $23.08 | $24.70 | $26.50 |
| 13.12% | $10.22 | $11.23 | $12.34 | $13.56 | $14.90 |
| 14.12% | $1.41 | $2.20 | $3.06 | $4.00 | $5.02 |
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
$17.98
-85.8% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 1.77
Base Case
$23.08
-81.8% vs current
- • Analyst consensus
- • Terminal growth: 2.5%
- • Beta: 1.42
Bull Case
$24.10
-81.0% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.0%
- • Beta: 1.20
Key Assumptions & Drivers• Financial Services Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth-28.88%
Year 3 Revenue Growth5.17%
Year 5 Revenue Growth2.50%
Year 7 Revenue Growth2.50%
Year 10 Revenue Growth2.50%
Terminal Growth Rate2.50%
Margin & Efficiency
Current EBIT Margin19.36%
Terminal EBIT Margin28.00%
Tax Rate21.07%
Historical Capex / Rev4.19%
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.