West Pharmaceutical Services, Inc.WSTNYSE
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DCF Valuation
DCF Valuation Summary
Strong Sell
Fair Value: $183.60 per share(market-calibrated)
-26.9%
Upside to Fair Value
Current
$251.03
Pure Model
$176.56
Fair Value
$183.60
Bull Case
$214.34
Bear Case
$141.01
Market Reality Check
Model Terminal Growth
3.00%
Market-Implied Growth
7.03%
Calibrated Growth
4.01%
Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $176.56.
What's Driving This Ratingfor WST
↓
CapEx normalizing toward maintenance
Historical CapEx is 10.17% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$308M in annual FCF. This is the biggest driver of long-term cash flow improvement.
✓
Premium margins already priced in
EBIT margin of 22.87% 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 5.68% revenue growth, fading to 3.00% by Year 10. Revenue reaches $4.6B (vs $3.1B today).
↔
Perpetuity and exit methods disagree
Perpetuity growth gives $130.04/share (15.5x terminal FCF) while exit multiple gives $223.08/share (34.8x terminal FCF). The 24x 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 $251.03, the market implies 7.03% perpetual growth — 403bps 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 68.87% indicates efficient cash generation. FCF reaches $873M by Year 10 (18.91% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)1.19
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)9.86%
Cost of Debt
Pre-tax Cost of Debt1.36%
Tax Rate19.76%
After-tax Cost of Debt1.09%
Equity Weight (E/V)97.76%
Debt Weight (D/V)2.24%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (97.76% × 9.86%) + (2.24% × 1.09%)
= 9.66%
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 | $3.2B | $3.7B | $4.0B | $4.2B | $4.6B |
| EBIT | $743M | $844M | $921M | $969M | $1.1B |
| Tax | $147M | $167M | $182M | $192M | $209M |
| NOPAT | $596M | $677M | $739M | $778M | $847M |
| + Depreciation | $149M | $169M | $184M | $194M | $211M |
| - Capex | $330M | $321M | $290M | $243M | $162M |
| - Δ NWC | $31M | $44M | $17M | $20M | $24M |
| Free Cash Flow | $383M | $482M | $616M | $710M | $873M |
| Discount Factor | 0.912 | 0.758 | 0.631 | 0.524 | 0.398 |
| Present Value | $349M | $366M | $388M | $372M | $347M |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$873M
Terminal Growth Rate3.00%
WACC9.66%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$13.5B
PV of Terminal Value$5.4B
Exit Multiple Method
Year 10 EBITDA$1.3B
Exit Multiple (EV/EBITDA)24.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$30.4B
PV of Terminal Value$12.1B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$3.7B
PV of Terminal Value$5.4B
Enterprise Value$9.0B
(-) Net Debt-$375M
Equity Value$9.4B
Shares Outstanding72M
Price per Share$130.04
Exit Multiple Method
PV of Projected FCFs$3.7B
PV of Terminal Value$12.1B
Enterprise Value$15.8B
(-) Net Debt-$375M
Equity Value$16.1B
Shares Outstanding72M
Price per Share$223.08
Pure Model Fair Value
$176.56
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% |
|---|---|---|---|---|---|
| 7.66% | $213.81 | $219.13 | $225.59 | $233.61 | $243.82 |
| 8.66% | $190.38 | $193.87 | $197.97 | $202.86 | $208.81 |
| 9.66% | $171.40 | $173.80 | $176.56 | $179.77 | $183.55 |
| 10.66% | $155.54 | $157.26 | $159.20 | $161.42 | $163.96 |
| 11.66% | $142.03 | $143.30 | $144.71 | $146.29 | $148.08 |
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
$141.01
-43.8% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.5%
- • Beta: 1.49
Base Case
$176.56
-29.7% vs current
- • Analyst consensus
- • Terminal growth: 3.0%
- • Beta: 1.19
Bull Case
$214.34
-14.6% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.5%
- • Beta: 1.01
Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth5.68%
Year 3 Revenue Growth6.99%
Year 5 Revenue Growth2.44%
Year 7 Revenue Growth2.67%
Year 10 Revenue Growth3.00%
Terminal Growth Rate3.00%
Margin & Efficiency
Current EBIT Margin22.87%
Tax Rate19.76%
Historical Capex / Rev10.17%
Terminal Capex / Rev3.50%
NWC / Revenue18.05%
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: 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.