West Pharmaceutical Services, Inc.WSTNYSE

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $191.18 per share(market-calibrated)

-22.2%

Upside to Fair Value

Current

$245.60

Pure Model

$184.24

Fair Value

$191.18

Bull Case

$226.46

Bear Case

$145.39

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

6.79%

Calibrated Growth

3.95%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $184.24.

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 ~$326M 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 5.62% revenue growth, fading to 3.00% by Year 10. Revenue reaches $4.9B (vs $3.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $135.04/share (15.5x terminal FCF) while exit multiple gives $233.44/share (34.9x 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 $245.60, the market implies 6.79% perpetual growth — 379bps 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 68.86% indicates efficient cash generation. FCF reaches $923M 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)97.71%

Debt Weight (D/V)2.29%

WACC Calculation

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

WACC = (97.71% × 9.86%) + (2.29% × 1.09%)

= 9.65%

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	$4.4B	$4.9B
EBIT	$743M	$842M	$921M	$1.0B	$1.1B
Tax	$147M	$166M	$182M	$199M	$221M
NOPAT	$596M	$676M	$739M	$809M	$896M
+ Depreciation	$149M	$169M	$184M	$202M	$224M
- Capex	$330M	$320M	$290M	$252M	$171M
- Δ NWC	$31M	$43M	$37M	$34M	$26M
Free Cash Flow	$383M	$482M	$596M	$725M	$923M
Discount Factor	0.912	0.758	0.631	0.525	0.398
Present Value	$349M	$365M	$376M	$380M	$367M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$923M

Terminal Growth Rate3.00%

WACC9.65%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$14.3B

PV of Terminal Value$5.7B

Exit Multiple Method

Year 10 EBITDA$1.3B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$32.2B

PV of Terminal Value$12.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$3.7B

PV of Terminal Value$5.7B

Enterprise Value$9.4B

(-) Net Debt-$375M

Equity Value$9.8B

Shares Outstanding72M

Price per Share$135.04

Exit Multiple Method

PV of Projected FCFs$3.7B

PV of Terminal Value$12.8B

Enterprise Value$16.5B

(-) Net Debt-$375M

Equity Value$16.9B

Shares Outstanding72M

Price per Share$233.44

Pure Model Fair Value

$184.24

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%
7.65%	$223.48	$229.12	$235.97	$244.46	$255.29
8.65%	$198.78	$202.47	$206.81	$212.00	$218.30
9.65%	$178.77	$181.32	$184.24	$187.64	$191.64
10.65%	$162.08	$163.90	$165.96	$168.30	$171.00
11.65%	$147.86	$149.20	$150.70	$152.37	$154.27

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

$145.39

-40.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.49

Base Case

$184.24

-25.0% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.19

Bull Case

$226.46

-7.8% 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 Growth5.62%

Year 3 Revenue Growth6.86%

Year 5 Revenue Growth5.34%

Year 7 Revenue Growth4.40%

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 / Revenue18.17%

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.

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