TE Connectivity Ltd.TELNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $296.99 per share(market-calibrated)

+42.1%

Upside to Fair Value

Current

$209.02

Pure Model

$295.16

Fair Value

$296.99

Bull Case

$380.06

Bear Case

$221.61

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

4.32%

Calibrated Growth

3.89%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $295.16.

What's Driving This Ratingfor TEL

✓

CapEx already efficient

CapEx at 4.45% 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 22.41% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $7.2B (24.32% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 13.47% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $193.04/share (19.0x terminal FCF) while exit multiple gives $397.27/share (48.7x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 4.32% is close to the model's 3.75% (only 57bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 57.52% — 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)1.25

Market Risk Premium4.50%

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

Cost of Equity (Re)10.10%

Cost of Debt

Pre-tax Cost of Debt1.07%

Tax Rate30.00%

After-tax Cost of Debt0.75%

Equity Weight (E/V)90.46%

Debt Weight (D/V)9.54%

WACC Calculation

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

WACC = (90.46% × 10.10%) + (9.54% × 0.75%)

= 9.21%

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	$19.4B	$22.4B	$24.6B	$26.5B	$29.6B
EBIT	$4.3B	$5.0B	$5.6B	$6.3B	$7.2B
Tax	$1.3B	$1.5B	$1.7B	$1.9B	$2.2B
NOPAT	$3.0B	$3.5B	$3.9B	$4.4B	$5.0B
+ Depreciation	$910M	$1.1B	$1.2B	$1.2B	$1.4B
- Capex	$864M	$999M	$1.1B	$1.2B	$1.3B
- Δ NWC	$366M	$240M	$141M	$152M	$170M
Free Cash Flow	$2.7B	$3.3B	$3.9B	$4.3B	$4.9B
Discount Factor	0.916	0.768	0.644	0.540	0.414
Present Value	$2.5B	$2.6B	$2.5B	$2.3B	$2.0B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.9B

Terminal Growth Rate3.75%

WACC9.21%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$93.8B

PV of Terminal Value$38.8B

Exit Multiple Method

Year 10 EBITDA$8.6B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$240.1B

PV of Terminal Value$99.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$23.8B

PV of Terminal Value$38.8B

Enterprise Value$62.6B

(-) Net Debt$5.3B

Equity Value$57.3B

Shares Outstanding297M

Price per Share$193.04

Exit Multiple Method

PV of Projected FCFs$23.8B

PV of Terminal Value$99.5B

Enterprise Value$123.3B

(-) Net Debt$5.3B

Equity Value$118.0B

Shares Outstanding297M

Price per Share$397.27

Pure Model Fair Value

$295.16

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
7.21%	$367.52	$380.09	$396.29	$417.97	$448.46
8.21%	$320.94	$328.48	$337.71	$349.27	$364.17
9.21%	$284.50	$289.38	$295.16	$302.10	$310.59
10.21%	$254.68	$258.02	$261.87	$266.37	$271.69
11.21%	$229.57	$231.94	$234.63	$237.70	$241.25

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

$221.61

6.0% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.56

Base Case

$295.16

41.2% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.25

Bull Case

$380.06

81.8% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.06

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth13.47%

Year 3 Revenue Growth7.23%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin22.41%

Terminal EBIT Margin25.00%

Tax Rate30.00%

Historical Capex / Rev4.45%

NWC / Revenue15.90%

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: 28x EV/EBITDA (Technology 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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