Willis Towers Watson Public Limited CompanyWTWNASDAQ
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $518.72 per share(market-calibrated)
+71.2%
Upside to Fair Value
Current
$303.07
Pure Model
$558.83
Fair Value
$518.72
Bull Case
$710.76
Bear Case
$437.60
Market Reality Check
Model Terminal Growth
2.50%
Market-Implied Growth
0.50%
Calibrated Growth
1.80%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $558.83.
What's Driving This Ratingfor WTW
↓
CapEx normalizing toward maintenance
Historical CapEx is 2.31% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$117M in annual FCF. This is the biggest driver of long-term cash flow improvement.
↑
Margin expansion modeled
Current EBIT margin is 18.34% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.7B (25.97% margin).
→
Moderate revenue growth
Analyst consensus projects 8.10% revenue growth, fading to 2.50% by Year 10. Revenue reaches $14.4B (vs $9.7B today).
↔
Perpetuity and exit methods disagree
Perpetuity growth gives $669.23/share (26.0x terminal FCF) while exit multiple gives $448.43/share (14.8x terminal FCF). The base case averages both methods.
🎯
Market pricing in lower growth than model
The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.
✓
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 81.17% indicates efficient cash generation. FCF reaches $3.6B by Year 10 (25.10% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.62
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)7.29%
Cost of Debt
Pre-tax Cost of Debt3.41%
Tax Rate16.47%
After-tax Cost of Debt2.85%
Equity Weight (E/V)81.14%
Debt Weight (D/V)18.86%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (81.14% × 7.29%) + (18.86% × 2.85%)
= 6.45%
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 | $10.5B | $11.9B | $12.7B | $13.4B | $14.4B |
| EBIT | $1.9B | $2.2B | $2.8B | $3.2B | $3.7B |
| Tax | $317M | $359M | $458M | $530M | $616M |
| NOPAT | $1.6B | $1.8B | $2.3B | $2.7B | $3.1B |
| + Depreciation | $520M | $588M | $631M | $663M | $714M |
| - Capex | $242M | $253M | $248M | $237M | $216M |
| - Δ NWC | $15M | $15M | $6M | $6M | $7M |
| Free Cash Flow | $1.9B | $2.1B | $2.7B | $3.1B | $3.6B |
| Discount Factor | 0.939 | 0.829 | 0.732 | 0.646 | 0.535 |
| Present Value | $1.8B | $1.8B | $2.0B | $2.0B | $1.9B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$3.6B
Terminal Growth Rate2.50%
WACC6.45%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$93.9B
PV of Terminal Value$50.3B
Exit Multiple Method
Year 10 EBITDA$4.5B
Exit Multiple (EV/EBITDA)12.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$53.5B
PV of Terminal Value$28.6B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$19.1B
PV of Terminal Value$50.3B
Enterprise Value$69.4B
(-) Net Debt$3.8B
Equity Value$65.6B
Shares Outstanding98M
Price per Share$669.23
Exit Multiple Method
PV of Projected FCFs$19.1B
PV of Terminal Value$28.6B
Enterprise Value$47.7B
(-) Net Debt$3.8B
Equity Value$43.9B
Shares Outstanding98M
Price per Share$448.43
Pure Model Fair Value
$558.83
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
| WACC ↓ / Growth → | 1.50% | 2.00% | 2.50% | 3.00% | 3.50% |
|---|---|---|---|---|---|
| 4.45% | $766.21 | $852.59 | $962.73 | $923.13 | $885.35 |
| 5.45% | $606.61 | $648.65 | $704.94 | $784.23 | $885.35 |
| 6.45% | $505.01 | $528.90 | $558.83 | $597.45 | $649.16 |
| 7.45% | $432.95 | $447.87 | $465.80 | $487.76 | $515.28 |
| 8.45% | $378.27 | $388.19 | $399.79 | $413.51 | $430.00 |
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
$437.60
44.4% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 0.77
Base Case
$558.83
84.4% vs current
- • Analyst consensus
- • Terminal growth: 2.5%
- • Beta: 0.62
Bull Case
$710.76
134.5% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.0%
- • Beta: 0.53
Key Assumptions & Drivers• Financial Services Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth8.10%
Year 3 Revenue Growth6.81%
Year 5 Revenue Growth2.50%
Year 7 Revenue Growth2.50%
Year 10 Revenue Growth2.50%
Terminal Growth Rate2.50%
Margin & Efficiency
Current EBIT Margin18.34%
Terminal EBIT Margin28.00%
Tax Rate16.47%
Historical Capex / Rev2.31%
Terminal Capex / Rev1.50%
NWC / Revenue1.92%
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: 12x EV/EBITDA (Financial Services 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.