WEC Energy Group, Inc.WECNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $155.40 per share(market-calibrated)

+32.2%

Upside to Fair Value

Current

$117.55

Pure Model

$165.74

Fair Value

$155.40

Bull Case

$192.93

Bear Case

$141.81

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.63%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $165.74.

What's Driving This Ratingfor WEC

↓

CapEx normalizing toward maintenance

Historical CapEx is 29.06% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$2.6B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 31.68% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 0.18% in Year 1 to -3.69% by Year 5 (per analyst consensus). That's below the 2.00% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. 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 $200.39/share (28.7x terminal FCF) while exit multiple gives $131.09/share (19.2x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 83.29% indicates efficient cash generation. FCF reaches $4.1B by Year 10 (37.08% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.58

Market Risk Premium4.50%

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

Cost of Equity (Re)7.12%

Cost of Debt

Pre-tax Cost of Debt3.07%

Tax Rate7.05%

After-tax Cost of Debt2.85%

Equity Weight (E/V)63.16%

Debt Weight (D/V)36.84%

WACC Calculation

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

WACC = (63.16% × 7.12%) + (36.84% × 2.85%)

= 5.55%

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	$9.8B	$11.0B	$11.1B	$10.7B	$11.0B
EBIT	$3.1B	$3.5B	$3.5B	$3.4B	$3.5B
Tax	$219M	$245M	$248M	$239M	$245M
NOPAT	$2.9B	$3.2B	$3.3B	$3.1B	$3.2B
+ Depreciation	$1.3B	$1.4B	$1.4B	$1.4B	$1.4B
- Capex	$2.9B	$2.6B	$2.0B	$1.4B	$548M
- Δ NWC	$2M	$57M	-$45M	-$16M	$23M
Free Cash Flow	$1.3B	$2.0B	$2.7B	$3.1B	$4.1B
Discount Factor	0.947	0.850	0.763	0.685	0.583
Present Value	$1.2B	$1.7B	$2.1B	$2.2B	$2.4B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.1B

Terminal Growth Rate2.00%

WACC5.55%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$116.8B

PV of Terminal Value$68.0B

Exit Multiple Method

Year 10 EBITDA$4.9B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$78.1B

PV of Terminal Value$45.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$19.5B

PV of Terminal Value$68.0B

Enterprise Value$87.5B

(-) Net Debt$22.3B

Equity Value$65.2B

Shares Outstanding325M

Price per Share$200.39

Exit Multiple Method

PV of Projected FCFs$19.5B

PV of Terminal Value$45.5B

Enterprise Value$64.9B

(-) Net Debt$22.3B

Equity Value$42.7B

Shares Outstanding325M

Price per Share$131.09

Pure Model Fair Value

$165.74

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.55%	$257.80	$301.43	$293.09	$278.34	$264.28
4.55%	$185.57	$204.89	$231.79	$271.81	$264.28
5.55%	$141.97	$152.39	$165.74	$183.47	$208.16
6.55%	$111.89	$118.19	$125.86	$135.44	$147.71
7.55%	$89.44	$93.53	$98.36	$104.15	$111.21

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

$141.81

20.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.73

Base Case

$165.74

41.0% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.58

Bull Case

$192.93

64.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.50

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.18%

Year 3 Revenue Growth5.22%

Year 5 Revenue Growth-3.69%

Year 7 Revenue Growth-1.41%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin31.68%

Tax Rate7.05%

Historical Capex / Rev29.06%

Terminal Capex / Rev5.00%

NWC / Revenue10.53%

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: 16x EV/EBITDA (Utilities 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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