DCF Studio

    NTRS · NMS · Financial Services

    Northern Trust Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 360.07

    Market price

    USD 177.89

    Implied upside

    +102.4%

    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.

    No usable EV/EBITDA (EBITDA is not positive), so the exit multiple falls back to 8x.

    Value Per Share

    Perpetuity growth
    USD 360.07+102.4%
    Exit multiple
    USD 383.06+115.3%
    Market price
    USD 177.89

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.6bnUSD 9.1bnUSD 9.7bnUSD 10.3bnUSD 10.9bn+6.1%
    EBITUSD 2.3bnUSD 2.5bnUSD 2.6bnUSD 2.8bnUSD 3.0bn+6.1%
    NOPATUSD 1.8bnUSD 2.0bnUSD 2.1bnUSD 2.2bnUSD 2.3bn+6.1%
    Add depreciation & amortisationUSD 769.0mUSD 816.3mUSD 866.5mUSD 919.8mUSD 976.3m+6.1%
    Less capital expenditureUSD -842.1mUSD -893.9mUSD -948.9mUSD -1.0bnUSD -1.1bn+6.1%
    Less increase in working capitalUSD -497.1mUSD -527.7mUSD -560.1mUSD -594.6mUSD -631.1m+6.1%
    Free cashflow to firmUSD 1.3bnUSD 1.4bnUSD 1.4bnUSD 1.5bnUSD 1.6bn+6.1%
    Discount factor0.95490.87070.79400.72400.6602-
    Present valueUSD 1.2bnUSD 1.2bnUSD 1.1bnUSD 1.1bnUSD 1.1bn-3.2%
    Present Value Of The ForecastUSD 5.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.172Reported 1.257, pulled toward 1.0 (Blume)
    Cost of equity11.45%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 45.4% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 32.5bn69.9% of capital
    Total debtUSD 14.0bn30.1% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.67%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 360.07

    74% of EV

    Forecast FCFF, final year
    USD 1.6bn
    Capex at depreciation, working capital in reinvestment
    USD 2.3bn
    Less reinvestment at g/ROIC (25.9% of NOPAT)
    USD -605.4m
    Capitalised
    USD 1.7bn
    ROIC (WACC floor)
    9.7%
    Terminal value, undiscounted
    USD 24.8bn
    Terminal value, discounted
    USD 16.4bn
    Enterprise value
    USD 22.1bn
    Less net debt
    USD -47.1bn
    Equity value
    USD 69.2bn

    Exit at 8.0x EBITDA

    Value per shareUSD 383.06

    78% of EV

    Terminal value, undiscounted
    USD 31.5bn
    Terminal value, discounted
    USD 20.8bn
    Enterprise value
    USD 26.5bn
    Less net debt
    USD -47.1bn
    Equity value
    USD 73.6bn

    Spread between methods: 6%.

    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%
    7.67%391.82392.39392.96393.53394.10
    8.67%373.61374.10374.58375.06375.55
    9.67%359.24359.66360.07360.49360.90
    10.67%347.62347.98348.34348.70349.07
    11.67%338.04338.36338.67338.99339.31

    Outlined: this model. Green text: above today's price of 177.89. 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
    EBIT margin27.2%-34.2%-61.4pp
    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.