Vertex Pharmaceuticals IncorporatedVRTXNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $653.24 per share(market-calibrated)

+37.7%

Upside to Fair Value

Current

$474.27

Pure Model

$708.57

Fair Value

$653.24

Bull Case

$935.16

Bear Case

$525.48

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.60%

Calibrated Growth

2.40%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $708.57.

What's Driving This Ratingfor VRTX

✓

CapEx already efficient

CapEx at 2.37% 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 34.33% — below the sector mature average of 39.43%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $8.9B (34.33% margin).

→

Moderate revenue growth

Analyst consensus projects 8.07% revenue growth, fading to 3.00% by Year 10. Revenue reaches $25.8B (vs $12.1B today).

🎯

Market pricing in lower growth than model

The market implies only 0.60% perpetual growth — 240bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 78.34% indicates efficient cash generation. FCF reaches $7.2B by Year 10 (28.03% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.32

Market Risk Premium4.50%

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

Cost of Equity (Re)5.92%

Cost of Debt

Pre-tax Cost of Debt1.05%

Tax Rate14.86%

After-tax Cost of Debt0.90%

Equity Weight (E/V)96.90%

Debt Weight (D/V)3.10%

WACC Calculation

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

WACC = (96.90% × 5.92%) + (3.10% × 0.90%)

= 5.76%

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	$13.0B	$15.8B	$19.4B	$22.7B	$25.8B
EBIT	$4.5B	$5.4B	$6.7B	$7.8B	$8.9B
Tax	$666M	$807M	$991M	$1.2B	$1.3B
NOPAT	$3.8B	$4.6B	$5.7B	$6.6B	$7.6B
+ Depreciation	$188M	$228M	$280M	$327M	$372M
- Capex	$310M	$375M	$461M	$538M	$614M
- Δ NWC	$91M	$135M	$168M	$144M	$70M
Free Cash Flow	$3.6B	$4.3B	$5.3B	$6.3B	$7.2B
Discount Factor	0.946	0.845	0.756	0.676	0.571
Present Value	$3.4B	$3.7B	$4.0B	$4.2B	$4.1B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.2B

Terminal Growth Rate3.00%

WACC5.76%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$270.1B

PV of Terminal Value$154.3B

Exit Multiple Method

Year 10 EBITDA$9.2B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$221.9B

PV of Terminal Value$126.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$39.5B

PV of Terminal Value$154.3B

Enterprise Value$193.8B

(-) Net Debt-$1.2B

Equity Value$195.0B

Shares Outstanding256M

Price per Share$762.45

Exit Multiple Method

PV of Projected FCFs$39.5B

PV of Terminal Value$126.7B

Enterprise Value$166.2B

(-) Net Debt-$1.2B

Equity Value$167.4B

Shares Outstanding256M

Price per Share$654.69

Pure Model Fair Value

$708.57

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.76%	$955.88	$916.91	$879.78	$844.39	$810.66
4.76%	$768.75	$843.34	$879.78	$844.39	$810.66
5.76%	$626.23	$661.09	$708.57	$777.04	$810.66
6.76%	$534.35	$553.71	$578.22	$610.25	$653.87
7.76%	$467.87	$479.79	$494.21	$512.02	$534.56

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

$525.48

10.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.39

Base Case

$708.57

49.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.32

Bull Case

$935.16

97.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.07%

Year 3 Revenue Growth10.12%

Year 5 Revenue Growth10.26%

Year 7 Revenue Growth7.36%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin34.33%

Terminal EBIT Margin39.43%

Tax Rate14.86%

Historical Capex / Rev2.37%

NWC / Revenue9.29%

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: 24x EV/EBITDA (Healthcare 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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