WEC Energy Group, Inc.WECNYSE
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $155.93 per share(market-calibrated)
+34.3%
Upside to Fair Value
Current
$116.12
Pure Model
$166.34
Fair Value
$155.93
Bull Case
$192.93
Bear Case
$142.37
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: $166.34.
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 $201.39/share (28.8x terminal FCF) while exit multiple gives $131.30/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)62.87%
Debt Weight (D/V)37.13%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (62.87% × 7.12%) + (37.13% × 2.85%)
= 5.54%
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 | 0.948 | 0.851 | 0.764 | 0.686 | 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%
WACC5.54%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$117.2B
PV of Terminal Value$68.3B
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$68.3B
Enterprise Value$87.8B
(-) Net Debt$22.3B
Equity Value$65.5B
Shares Outstanding325M
Price per Share$201.39
Exit Multiple Method
PV of Projected FCFs$19.5B
PV of Terminal Value$45.5B
Enterprise Value$65.0B
(-) Net Debt$22.3B
Equity Value$42.7B
Shares Outstanding325M
Price per Share$131.30
Pure Model Fair Value
$166.34
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% |
|---|---|---|---|---|---|
| 3.54% | $258.99 | $303.14 | $293.09 | $278.34 | $264.28 |
| 4.54% | $186.23 | $205.72 | $232.88 | $273.37 | $264.28 |
| 5.54% | $142.40 | $152.89 | $166.34 | $184.23 | $209.16 |
| 6.54% | $112.21 | $118.54 | $126.26 | $135.90 | $148.26 |
| 7.54% | $89.68 | $93.79 | $98.65 | $104.47 | $111.57 |
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
$142.37
22.6% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 0.73
Base Case
$166.34
43.3% vs current
- • Analyst consensus
- • Terminal growth: 2.0%
- • Beta: 0.58
Bull Case
$192.93
66.1% 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.