DCF Studio

    CINF · NMS · Financial Services

    Cincinnati Financial Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 596.40

    Market price

    USD 169.00

    Implied upside

    +252.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.19% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.38% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Current EV/EBITDA of 2.3x sits outside a defensible 3-20x band, so the exit multiple is capped at 3.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 596.40+252.9%
    Exit multiple
    USD 403.99+139.0%
    Market price
    USD 169.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn6bn12bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 15.7bnUSD 19.5bnUSD 24.3bnUSD 30.2bnUSD 37.6bn+24.4%
    EBITUSD 2.4bnUSD 3.0bnUSD 3.7bnUSD 4.6bnUSD 5.7bn+24.4%
    NOPATUSD 1.9bnUSD 2.4bnUSD 3.0bnUSD 3.7bnUSD 4.6bn+24.4%
    Add depreciation & amortisationUSD 217.2mUSD 270.2mUSD 336.1mUSD 418.1mUSD 520.0m+24.4%
    Less capital expenditureUSD -217.2mUSD -270.2mUSD -336.1mUSD -418.1mUSD -520.0m+24.4%
    Less increase in working capitalUSD 3.1bnUSD 3.8bnUSD 4.8bnUSD 5.9bnUSD 7.4bn-24.4%
    Free cashflow to firmUSD 5.0bnUSD 6.2bnUSD 7.7bnUSD 9.6bnUSD 12.0bn+24.4%
    Discount factor0.95920.88250.81200.74700.6873-
    Present valueUSD 4.8bnUSD 5.5bnUSD 6.3bnUSD 7.2bnUSD 8.2bn+14.4%
    Present Value Of The ForecastUSD 32.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.695Reported 0.545, pulled toward 1.0 (Blume)
    Cost of equity8.82%Risk-free + beta x equity risk premium
    Cost of debt6.02%Interest expense / average total debt
    Market capitalisationUSD 25.9bn96.7% of capital
    Total debtUSD 886.0m3.3% of capital, book value as a proxy
    Tax rate19.7%Effective, capped at statutory
    WACC8.69%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 596.40

    57% of EV

    Forecast FCFF, final year
    USD 12.0bn
    Capex at depreciation, working capital in reinvestment
    USD 4.6bn
    Less reinvestment at g/ROIC (17.5% of NOPAT)
    USD -804.3m
    Capitalised
    USD 3.8bn
    ROIC (reported)
    14.3%
    Terminal value, undiscounted
    USD 62.9bn
    Terminal value, discounted
    USD 43.2bn
    Enterprise value
    USD 75.2bn
    Less net debt
    USD -18.8bn
    Equity value
    USD 94.1bn

    Exit at 3.0x EBITDA

    Value per shareUSD 403.99

    29% of EV

    Terminal value, undiscounted
    USD 18.8bn
    Terminal value, discounted
    USD 12.9bn
    Enterprise value
    USD 44.9bn
    Less net debt
    USD -18.8bn
    Equity value
    USD 63.7bn

    Spread between methods: 38%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.69%714.86741.07773.36814.20867.60
    7.69%634.50650.03668.40690.53717.77
    8.69%575.76585.36596.40609.26624.46
    9.69%530.76536.84543.68551.44560.34
    10.69%495.04498.92503.20507.96513.28

    Outlined: this model. Green text: above today's price of 169.00. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year24.4%-11.2%-35.6pp
    EBIT margin15.2%-14.7%-29.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.