XYZ DCF Valuation | Stock Alarm Pro

XYZXYZ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $230.39 per share(market-calibrated)

+329.8%

Upside to Fair Value

Current

$53.60

Pure Model

$235.25

Fair Value

$230.39

Bull Case

$360.40

Bear Case

$156.81

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

0.50%

Calibrated Growth

2.61%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $235.25.

What's Driving This Ratingfor XYZ

✓

CapEx already efficient

CapEx at 0.80% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 2.13% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $21.3B (19.01% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 11.30% revenue growth in Year 1, fading to 3.75% by Year 5 and 3.75% by Year 10. Revenue reaches $112.0B by Year 10 (vs $24.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $131.54/share (10.8x terminal FCF) while exit multiple gives $338.96/share (37.4x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.95% indicates efficient cash generation. FCF reaches $16.9B by Year 10 (15.08% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)2.67

Market Risk Premium4.50%

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

Cost of Equity (Re)16.51%

Cost of Debt

Pre-tax Cost of Debt0.34%

Tax Rate21.00%

After-tax Cost of Debt0.27%

Equity Weight (E/V)80.68%

Debt Weight (D/V)19.32%

WACC Calculation

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

WACC = (80.68% × 16.51%) + (19.32% × 0.27%)

= 13.37%

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	$26.8B	$32.8B	$93.2B	$100.3B	$112.0B
EBIT	$572M	$699M	$6.2B	$13.3B	$21.3B
Tax	$120M	$147M	$1.3B	$2.8B	$4.5B
NOPAT	$452M	$552M	$4.9B	$10.5B	$16.8B
+ Depreciation	$299M	$365M	$1.0B	$1.1B	$1.2B
- Capex	$216M	$263M	$748M	$806M	$900M
- Δ NWC	$186M	$205M	$230M	$247M	$276M
Free Cash Flow	$350M	$449M	$5.0B	$10.6B	$16.9B
Discount Factor	0.882	0.686	0.534	0.415	0.285
Present Value	$308M	$308M	$2.7B	$4.4B	$4.8B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$16.9B

Terminal Growth Rate3.75%

WACC13.37%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$182.2B

PV of Terminal Value$51.9B

Exit Multiple Method

Year 10 EBITDA$22.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$631.0B

PV of Terminal Value$179.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$24.9B

PV of Terminal Value$51.9B

Enterprise Value$76.8B

(-) Net Debt-$4.3B

Equity Value$81.2B

Shares Outstanding617M

Price per Share$131.54

Exit Multiple Method

PV of Projected FCFs$24.9B

PV of Terminal Value$179.9B

Enterprise Value$204.8B

(-) Net Debt-$4.3B

Equity Value$209.1B

Shares Outstanding617M

Price per Share$338.96

Pure Model Fair Value

$235.25

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
11.37%	$283.15	$286.86	$291.05	$295.84	$301.35
12.37%	$255.09	$257.82	$260.87	$264.29	$268.17
13.37%	$230.92	$232.98	$235.25	$237.77	$240.59
14.37%	$209.86	$211.44	$213.17	$215.07	$217.17
15.37%	$191.34	$192.58	$193.92	$195.38	$196.99

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

$156.81

192.5% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 3.00

Base Case

$235.25

338.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 2.67

Bull Case

$360.40

572.4% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 2.27

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth11.30%

Year 3 Revenue Growth10.08%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin2.13%

Terminal EBIT Margin25.00%

Tax Rate21.00%

Historical Capex / Rev0.80%

NWC / Revenue6.82%

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: 28x EV/EBITDA (Technology 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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