Williams-Sonoma, Inc.WSMNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $183.43 per share(market-calibrated)

-6.7%

Upside to Fair Value

Current

$196.70

Pure Model

$180.81

Fair Value

$183.43

Bull Case

$217.47

Bear Case

$144.64

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

6.62%

Calibrated Growth

3.54%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $180.81.

What's Driving This Ratingfor WSM

✓

CapEx already efficient

CapEx at 3.01% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 22.64% 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.

→

Moderate revenue growth

Analyst consensus projects 1.98% revenue growth, fading to 3.00% by Year 10. Revenue reaches $10.8B (vs $7.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $136.82/share (13.0x terminal FCF) while exit multiple gives $224.79/share (30.2x terminal FCF). The 20x 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 higher long-term growth

To justify $196.70, the market implies 6.62% perpetual growth — 362bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 66.17% indicates efficient cash generation. FCF reaches $1.8B by Year 10 (16.80% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.56

Market Risk Premium4.50%

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

Cost of Equity (Re)11.51%

Cost of Debt

Pre-tax Cost of Debt0.27%

Tax Rate24.26%

After-tax Cost of Debt0.20%

Equity Weight (E/V)94.85%

Debt Weight (D/V)5.15%

WACC Calculation

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

WACC = (94.85% × 11.51%) + (5.15% × 0.20%)

= 10.93%

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	$7.9B	$8.5B	$9.3B	$9.9B	$10.8B
EBIT	$1.8B	$1.9B	$2.1B	$2.2B	$2.4B
Tax	$432M	$467M	$513M	$544M	$594M
NOPAT	$1.3B	$1.5B	$1.6B	$1.7B	$1.9B
+ Depreciation	$216M	$234M	$257M	$273M	$298M
- Capex	$237M	$256M	$281M	$298M	$326M
- Δ NWC	$5M	$11M	$8M	$9M	$10M
Free Cash Flow	$1.3B	$1.4B	$1.6B	$1.7B	$1.8B
Discount Factor	0.901	0.733	0.595	0.484	0.354
Present Value	$1.2B	$1.0B	$934M	$805M	$644M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.8B

Terminal Growth Rate3.00%

WACC10.93%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$23.6B

PV of Terminal Value$8.4B

Exit Multiple Method

Year 10 EBITDA$2.7B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$54.9B

PV of Terminal Value$19.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$9.0B

PV of Terminal Value$8.4B

Enterprise Value$17.4B

(-) Net Debt$134M

Equity Value$17.3B

Shares Outstanding126M

Price per Share$136.82

Exit Multiple Method

PV of Projected FCFs$9.0B

PV of Terminal Value$19.5B

Enterprise Value$28.5B

(-) Net Debt$134M

Equity Value$28.4B

Shares Outstanding126M

Price per Share$224.79

Pure Model Fair Value

$180.81

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%
8.93%	$214.96	$218.70	$223.07	$228.25	$234.48
9.93%	$194.21	$196.82	$199.80	$203.25	$207.28
10.93%	$176.81	$178.69	$180.81	$183.21	$185.96
11.93%	$161.92	$163.31	$164.86	$166.60	$168.55
12.93%	$148.98	$150.04	$151.20	$152.49	$153.92

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

$144.64

-26.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.95

Base Case

$180.81

-8.1% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.56

Bull Case

$217.47

10.6% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.32

Key Assumptions & Drivers• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth1.98%

Year 3 Revenue Growth4.26%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin22.64%

Tax Rate24.26%

Historical Capex / Rev3.01%

NWC / Revenue3.05%

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: 20x EV/EBITDA (Consumer Cyclical 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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