DCF Studio

    TRV · NYQ · Financial Services

    The Travelers Companies, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 451.81

    Market price

    USD 374.62

    Implied upside

    +20.6%

    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 1.73% 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.

    Value Per Share

    Perpetuity growth
    USD 451.81+20.6%
    Exit multiple
    USD 342.95-8.5%
    Market price
    USD 374.62

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 53.6bnUSD 58.9bnUSD 64.6bnUSD 70.9bnUSD 77.9bn+9.8%
    EBITUSD 6.2bnUSD 6.8bnUSD 7.5bnUSD 8.3bnUSD 9.1bn+9.8%
    NOPATUSD 5.2bnUSD 5.7bnUSD 6.2bnUSD 6.8bnUSD 7.5bn+9.8%
    Add depreciation & amortisationUSD 927.0mUSD 1.0bnUSD 1.1bnUSD 1.2bnUSD 1.3bn+9.8%
    Less capital expenditureUSD -927.0mUSD -1.0bnUSD -1.1bnUSD -1.2bnUSD -1.3bn+9.8%
    Less increase in working capitalUSD -3.5bnUSD -3.9bnUSD -4.3bnUSD -4.7bnUSD -5.2bn+9.8%
    Free cashflow to firmUSD 1.6bnUSD 1.8bnUSD 1.9bnUSD 2.1bnUSD 2.3bn+9.8%
    Discount factor0.96220.89080.82470.76350.7068-
    Present valueUSD 1.6bnUSD 1.6bnUSD 1.6bnUSD 1.6bnUSD 1.7bn+1.6%
    Present Value Of The ForecastUSD 8.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.632Reported 0.451, pulled toward 1.0 (Blume)
    Cost of equity8.47%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 78.1bn89.4% of capital
    Total debtUSD 9.3bn10.6% of capital, book value as a proxy
    Tax rate17.2%Effective, capped at statutory
    WACC8.02%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 451.81

    91% of EV

    Forecast FCFF, final year
    USD 2.3bn
    Capex at depreciation, working capital in reinvestment
    USD 7.5bn
    Less reinvestment at g/ROIC (20.9% of NOPAT)
    USD -1.6bn
    Capitalised
    USD 5.9bn
    ROIC (reported)
    11.9%
    Terminal value, undiscounted
    USD 110.2bn
    Terminal value, discounted
    USD 77.9bn
    Enterprise value
    USD 85.9bn
    Less net debt
    USD -16.9bn
    Equity value
    USD 102.8bn

    Exit at 7.2x EBITDA

    Value per shareUSD 342.95

    87% of EV

    Terminal value, undiscounted
    USD 75.2bn
    Terminal value, discounted
    USD 53.1bn
    Enterprise value
    USD 61.2bn
    Less net debt
    USD -16.9bn
    Equity value
    USD 78.1bn

    Spread between methods: 27%.

    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%
    6.02%609.29647.12695.41759.36848.32
    7.02%501.24521.64546.34576.93615.94
    8.02%426.83438.36451.81467.74486.98
    9.02%372.62379.22386.69395.24405.18
    10.02%331.47335.16339.22343.73348.79

    Outlined: this model. Green text: above today's price of 374.62. 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 year9.8%0.0%-9.8pp
    EBIT margin11.6%9.7%-2.0pp
    Discount rate8.0%9.2%+1.2pp
    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.