State Street CorporationSTTNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $31.93 per share(market-calibrated)

-74.6%

Upside to Fair Value

Current

$125.91

Pure Model

$23.03

Fair Value

$31.93

Bull Case

$24.03

Bear Case

$17.96

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

8.88%

Calibrated Growth

4.73%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $23.03.

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 $10.21/share (10.6x terminal FCF) while exit multiple gives $35.85/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 $125.91, the market implies 8.88% perpetual growth — 638bps 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)54.19%

Debt Weight (D/V)45.81%

WACC Calculation

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

WACC = (54.19% × 10.87%) + (45.81% × 13.62%)

= 12.13%

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%

WACC12.13%

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$10.21

Exit Multiple Method

PV of Projected FCFs$17.6B

PV of Terminal Value$22.3B

Enterprise Value$39.8B

(-) Net Debt$29.8B

Equity Value$10.0B

Shares Outstanding280M

Price per Share$35.85

Pure Model Fair Value

$23.03

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%
10.13%	$45.67	$48.05	$50.74	$53.81	$57.34
11.13%	$31.94	$33.69	$35.64	$37.83	$40.31
12.13%	$20.26	$21.58	$23.03	$24.64	$26.45
13.13%	$10.18	$11.19	$12.30	$13.51	$14.86
14.13%	$1.38	$2.17	$3.02	$3.96	$4.98

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

$17.96

-85.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.77

Base Case

$23.03

-81.7% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.42

Bull Case

$24.03

-80.9% 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.

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