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.
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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)
YearYear 1Year 3Year 5Year 7Year 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 Factor0.9120.7580.6310.5240.398
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 EstimatesHealthcare 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.