Xcel Energy Inc.XELNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $188.22 per share(market-calibrated)

+126.3%

Upside to Fair Value

Current

$83.17

Pure Model

$204.84

Fair Value

$188.22

Bull Case

$263.39

Bear Case

$174.02

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $204.84.

What's Driving This Ratingfor XEL

↓

CapEx normalizing toward maintenance

Historical CapEx is 31.73% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$6.7B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 26.55% 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 8.14% revenue growth, fading to 2.00% by Year 10. Revenue reaches $25.0B (vs $14.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $239.00/share (29.1x terminal FCF) while exit multiple gives $170.68/share (21.1x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.96% indicates efficient cash generation. FCF reaches $8.5B by Year 10 (33.85% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.48

Market Risk Premium4.50%

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

Cost of Equity (Re)6.64%

Cost of Debt

Pre-tax Cost of Debt2.92%

Tax Rate21.00%

After-tax Cost of Debt2.31%

Equity Weight (E/V)57.50%

Debt Weight (D/V)42.50%

WACC Calculation

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

WACC = (57.50% × 6.64%) + (42.50% × 2.31%)

= 5.50%

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	$15.9B	$18.4B	$21.1B	$23.1B	$25.0B
EBIT	$4.2B	$4.9B	$5.6B	$6.1B	$6.7B
Tax	$885M	$1.0B	$1.2B	$1.3B	$1.4B
NOPAT	$3.3B	$3.9B	$4.4B	$4.8B	$5.3B
+ Depreciation	$2.9B	$3.3B	$3.8B	$4.2B	$4.5B
- Capex	$5.0B	$4.8B	$4.2B	$3.2B	$1.3B
- Δ NWC	$82M	$88M	$78M	$64M	$34M
Free Cash Flow	$1.1B	$2.3B	$4.0B	$5.7B	$8.5B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$1.0B	$2.0B	$3.0B	$3.9B	$5.0B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$8.5B

Terminal Growth Rate2.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$247.1B

PV of Terminal Value$144.6B

Exit Multiple Method

Year 10 EBITDA$11.2B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$178.6B

PV of Terminal Value$104.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$31.5B

PV of Terminal Value$144.6B

Enterprise Value$176.1B

(-) Net Debt$35.8B

Equity Value$140.3B

Shares Outstanding587M

Price per Share$239.00

Exit Multiple Method

PV of Projected FCFs$31.5B

PV of Terminal Value$104.5B

Enterprise Value$136.0B

(-) Net Debt$35.8B

Equity Value$100.2B

Shares Outstanding587M

Price per Share$170.68

Pure Model Fair Value

$204.84

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.50%	$314.62	$367.60	$349.56	$332.38	$316.01
4.50%	$228.25	$251.39	$283.79	$332.38	$316.01
5.50%	$176.52	$188.91	$204.84	$226.08	$255.81
6.50%	$141.01	$148.45	$157.56	$168.94	$183.57
7.50%	$114.57	$119.40	$125.11	$131.95	$140.32

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

$174.02

109.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.59

Base Case

$204.84

146.3% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.48

Bull Case

$263.39

216.7% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.40

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.14%

Year 3 Revenue Growth7.53%

Year 5 Revenue Growth5.75%

Year 7 Revenue Growth4.25%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin26.55%

Tax Rate21.00%

Historical Capex / Rev31.73%

Terminal Capex / Rev5.00%

NWC / Revenue6.83%

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: 16x EV/EBITDA (Utilities 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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