The Travelers Companies, Inc.TRVNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $806.21 per share(market-calibrated)

+159.3%

Upside to Fair Value

Current

$310.97

Pure Model

$867.66

Fair Value

$806.21

Bull Case

$1,022.95

Bear Case

$735.60

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $867.66.

What's Driving This Ratingfor TRV

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.34% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$1.6B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 21.64% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $15.4B (26.67% margin).

→

Moderate revenue growth

Analyst consensus projects -7.82% revenue growth, fading to 2.50% by Year 10. Revenue reaches $57.6B (vs $48.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $1,017.56/share (26.6x terminal FCF) while exit multiple gives $717.77/share (16.3x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps 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 73.82% indicates efficient cash generation. FCF reaches $12.0B by Year 10 (20.84% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.50

Market Risk Premium4.50%

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

Cost of Equity (Re)6.76%

Cost of Debt

Pre-tax Cost of Debt4.07%

Tax Rate19.34%

After-tax Cost of Debt3.28%

Equity Weight (E/V)88.27%

Debt Weight (D/V)11.73%

WACC Calculation

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

WACC = (88.27% × 6.76%) + (11.73% × 3.28%)

= 6.35%

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	$45.0B	$48.2B	$50.9B	$53.5B	$57.6B
EBIT	$9.7B	$10.4B	$12.2B	$13.6B	$15.4B
Tax	$1.9B	$2.0B	$2.4B	$2.6B	$3.0B
NOPAT	$7.9B	$8.4B	$9.8B	$11.0B	$12.4B
+ Depreciation	$703M	$753M	$795M	$836M	$900M
- Capex	$2.0B	$1.8B	$1.6B	$1.3B	$864M
- Δ NWC	-$1.1B	$519M	$373M	$391M	$422M
Free Cash Flow	$7.7B	$6.9B	$8.7B	$10.1B	$12.0B
Discount Factor	0.940	0.831	0.735	0.650	0.540
Present Value	$7.3B	$5.7B	$6.4B	$6.6B	$6.5B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$12.0B

Terminal Growth Rate2.50%

WACC6.35%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$319.6B

PV of Terminal Value$172.7B

Exit Multiple Method

Year 10 EBITDA$16.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$195.2B

PV of Terminal Value$105.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$63.9B

PV of Terminal Value$172.7B

Enterprise Value$236.6B

(-) Net Debt$8.4B

Equity Value$228.1B

Shares Outstanding224M

Price per Share$1,017.56

Exit Multiple Method

PV of Projected FCFs$63.9B

PV of Terminal Value$105.4B

Enterprise Value$169.3B

(-) Net Debt$8.4B

Equity Value$160.9B

Shares Outstanding224M

Price per Share$717.77

Pure Model Fair Value

$867.66

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%
4.35%	$1,186.53	$1,322.70	$1,440.85	$1,382.33	$1,326.51
5.35%	$940.39	$1,005.29	$1,092.96	$1,217.93	$1,326.51
6.35%	$785.30	$821.75	$867.66	$927.28	$1,007.80
7.35%	$675.86	$698.45	$725.69	$759.19	$801.39
8.35%	$593.00	$607.95	$625.46	$646.23	$671.30

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

$735.60

136.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.63

Base Case

$867.66

179.0% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.50

Bull Case

$1,022.95

229.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.43

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-7.82%

Year 3 Revenue Growth3.73%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin21.64%

Terminal EBIT Margin28.00%

Tax Rate19.34%

Historical Capex / Rev4.34%

Terminal Capex / Rev1.50%

NWC / Revenue30.00%

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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