Warner Bros. Discovery, Inc.WBDNASDAQ
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $98.32 per share(market-calibrated)
+248.7%
Upside to Fair Value
Current
$28.20
Pure Model
$101.99
Fair Value
$98.32
Bull Case
$121.70
Bear Case
$82.42
Market Reality Check
Model Terminal Growth
3.00%
Market-Implied Growth
0.50%
Calibrated Growth
2.13%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $101.99.
What's Driving This Ratingfor WBD
✓
CapEx already efficient
CapEx at 2.60% 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 -4.42% — below the sector mature average of 22.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $6.0B (13.34% margin).
→
Moderate revenue growth
Analyst consensus projects 0.62% revenue growth, fading to 3.00% by Year 10. Revenue reaches $45.1B (vs $37.3B today).
↔
Perpetuity and exit methods disagree
Perpetuity growth gives $86.00/share (16.1x terminal FCF) while exit multiple gives $117.98/share (25.1x terminal FCF). The 22x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.
🎯
Market pricing in lower growth than model
The market implies only 0.50% perpetual growth — 250bps 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 87.82% indicates efficient cash generation. FCF reaches $21.7B by Year 10 (48.03% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)1.68
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)12.04%
Cost of Debt
Pre-tax Cost of Debt5.37%
Tax Rate30.00%
After-tax Cost of Debt3.76%
Equity Weight (E/V)68.18%
Debt Weight (D/V)31.82%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (68.18% × 12.04%) + (31.82% × 3.76%)
= 9.40%
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 | $37.5B | $39.0B | $39.9B | $41.6B | $45.1B |
| EBIT | -$1.7B | -$1.7B | -$1.8B | $2.1B | $6.0B |
| Tax | -$497M | -$517M | -$528M | $635M | $1.8B |
| NOPAT | -$1.2B | -$1.2B | -$1.2B | $1.5B | $4.2B |
| + Depreciation | $15.5B | $16.1B | $16.5B | $17.2B | $18.7B |
| - Capex | $977M | $1.0B | $1.0B | $1.1B | $1.2B |
| - Δ NWC | $5M | $18M | $14M | $18M | $26M |
| Free Cash Flow | $13.4B | $13.9B | $14.2B | $17.6B | $21.7B |
| Discount Factor | 0.914 | 0.764 | 0.638 | 0.533 | 0.407 |
| Present Value | $12.2B | $10.6B | $9.1B | $9.4B | $8.8B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$21.7B
Terminal Growth Rate3.00%
WACC9.40%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$348.8B
PV of Terminal Value$142.0B
Exit Multiple Method
Year 10 EBITDA$24.7B
Exit Multiple (EV/EBITDA)22.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$543.2B
PV of Terminal Value$221.1B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$98.9B
PV of Terminal Value$142.0B
Enterprise Value$240.8B
(-) Net Debt$28.0B
Equity Value$212.8B
Shares Outstanding2.5B
Price per Share$86.00
Exit Multiple Method
PV of Projected FCFs$98.9B
PV of Terminal Value$221.1B
Enterprise Value$320.0B
(-) Net Debt$28.0B
Equity Value$292.0B
Shares Outstanding2.5B
Price per Share$117.98
Pure Model Fair Value
$101.99
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% |
|---|---|---|---|---|---|
| 7.40% | $126.95 | $131.29 | $136.63 | $143.33 | $152.00 |
| 8.40% | $110.72 | $113.52 | $116.84 | $120.84 | $125.75 |
| 9.40% | $97.87 | $99.78 | $101.99 | $104.57 | $107.63 |
| 10.40% | $87.34 | $88.69 | $90.23 | $91.99 | $94.02 |
| 11.40% | $78.48 | $79.47 | $80.58 | $81.83 | $83.24 |
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
$82.42
192.3% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.5%
- • Beta: 2.09
Base Case
$101.99
261.7% vs current
- • Analyst consensus
- • Terminal growth: 3.0%
- • Beta: 1.68
Bull Case
$121.70
331.6% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.5%
- • Beta: 1.42
Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Communication Services Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth0.62%
Year 3 Revenue Growth2.40%
Year 5 Revenue Growth1.81%
Year 7 Revenue Growth2.29%
Year 10 Revenue Growth3.00%
Terminal Growth Rate3.00%
Margin & Efficiency
Current EBIT Margin-4.42%
Terminal EBIT Margin22.00%
Tax Rate30.00%
Historical Capex / Rev2.60%
NWC / Revenue1.96%
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: 22x EV/EBITDA (Communication 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.