DCF Studio

    PRU · NYQ · Financial Services

    Prudential Financial, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 211.77

    Market price

    USD 118.40

    Implied upside

    +78.9%

    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 0.00% 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 1.00% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.2%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

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

    Value Per Share

    Perpetuity growth
    USD 211.77+78.9%
    Exit multiple
    USD 204.84+73.0%
    Market price
    USD 118.40

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 62.4bnUSD 63.8bnUSD 65.2bnUSD 66.7bnUSD 68.2bn+2.3%
    EBITUSD 2.3bnUSD 2.3bnUSD 2.4bnUSD 2.4bnUSD 2.5bn+2.3%
    NOPATUSD 1.8bnUSD 1.9bnUSD 1.9bnUSD 1.9bnUSD 2.0bn+2.3%
    Add depreciation & amortisationUSD 129.1mUSD 132.0mUSD 135.0mUSD 138.1mUSD 141.3m+2.3%
    Less capital expenditureUSD -623.5mUSD -637.7mUSD -652.3mUSD -667.1mUSD -682.3m+2.3%
    Less increase in working capitalUSD 488.6mUSD 499.8mUSD 511.1mUSD 522.8mUSD 534.7m-2.3%
    Free cashflow to firmUSD 1.8bnUSD 1.8bnUSD 1.9bnUSD 1.9bnUSD 2.0bn+2.3%
    Discount factor0.96090.88720.81910.75630.6982-
    Present valueUSD 1.7bnUSD 1.6bnUSD 1.5bnUSD 1.5bnUSD 1.4bn-5.6%
    Present Value Of The ForecastUSD 7.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.879Reported 0.819, pulled toward 1.0 (Blume)
    Cost of equity9.83%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 40.8bn64.0% of capital
    Total debtUSD 23.0bn36.0% of capital, book value as a proxy
    Tax rate20.0%Effective, capped at statutory
    WACC8.31%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 211.77

    69% of EV

    Forecast FCFF, final year
    USD 2.0bn
    Capex at depreciation, working capital in reinvestment
    USD 2.0bn
    Less reinvestment at g/ROIC (30.1% of NOPAT)
    USD -596.4m
    Capitalised
    USD 1.4bn
    ROIC (WACC floor)
    8.3%
    Terminal value, undiscounted
    USD 24.5bn
    Terminal value, discounted
    USD 17.1bn
    Enterprise value
    USD 24.8bn
    Less net debt
    USD -50.1bn
    Equity value
    USD 74.9bn

    Exit at 8.0x EBITDA

    Value per shareUSD 204.84

    65% of EV

    Terminal value, undiscounted
    USD 20.9bn
    Terminal value, discounted
    USD 14.6bn
    Enterprise value
    USD 22.4bn
    Less net debt
    USD -50.1bn
    Equity value
    USD 72.5bn

    Spread between methods: 3%.

    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%
    6.31%232.97233.30233.64233.98234.31
    7.31%220.65220.93221.21221.48221.76
    8.31%211.30211.53211.77212.00212.24
    9.31%203.96204.16204.36204.57204.77
    10.31%198.05198.22198.40198.57198.75

    Outlined: this model. Green text: above today's price of 118.40. 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 year2.3%-25.4%-27.7pp
    EBIT margin3.6%-3.8%-7.4pp
    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.