Using an unlevered Free Cash Flow to Firm (FCFF) model, we project Arch Capital Group Ltd.'s cash flows over 5 years with line-by-line expense modeling. Revenue is projected revenue growing from -11.9% to 22.3% annually, with expenses (COGS, SG&A, R&D) held at historical ratios. Depreciation is computed from a vintage matrix based on a 5-year useful life. Working capital is modeled using historical turnover days (DSO 351, DPO 165, DIO 60). At a 7.9% WACC with mid-year discounting, the terminal value (85% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 9.2x to Year 6 EBITDA. After subtracting net debt, the equity value implies a fair price of $191.01 per share, suggesting ACGL is undervalued by 103.3% at the current price of $93.95.
Adjust parameters to explore scenarios. Changes are for exploration only and do not affect saved valuations.
| 2026 | 2027 | 2028 | 2029 | 2030 | Terminal | |
|---|---|---|---|---|---|---|
| Profit Before Tax | 5,480 | 5,669 | 6,202 | 7,581 | 9,267 | 9,499 |
| (−) Net Interest | 192 | 199 | 217 | 266 | 325 | 333 |
| (+) D&A | 48 | 53 | 57 | 61 | 70 | 71 |
| EBITDA | 5,720 | 5,921 | 6,475 | 7,908 | 9,662 | 9,903 |
| (−) Tax | 94 | 97 | 106 | 130 | 158 | — |
| (−) CapEx | 67 | 69 | 76 | 92 | 113 | — |
| (−) ΔWC | 10,195 | 469 | 1,321 | 3,422 | 4,183 | — |
| Free Cash Flow (FCF) | -4,636 | 5,285 | 4,973 | 4,264 | 5,208 | — |
| Peers' EBITDA Multiple | 9.2x | |||||
| Terminal Value | 91,012 | |||||
| WACC / Discount Rate | 7.89% | |||||
| Timing of FCF (mid year) | 0.5 | 1.5 | 2.5 | 3.5 | 4.5 | 5 |
| Present Value of FCF | -4,463 | 4,716 | 4,113 | 3,269 | 3,701 | 62,270 |
| Enterprise Value | 73,607 | |||||
| Projection Period | 11,337 | 15.4% | ||||
| Terminal Value | 62,270 | 84.6% | ||||
| (−) Current Net Debt | 1,736 | |||||
| Equity Value | 71,871 | |||||
| (÷) Outstanding Shares | 376M | |||||
| Fair Price | $191 | +103.4% | ||||
| WACC \ EV/EBITDA Exit Multiple | 5.2x | 7.2x | 9.2x | 11.2x | 13.2x |
|---|---|---|---|---|---|
| 5.9% | $130 | $170 | $209 | $249 | $289 |
| 6.9% | $124 | $162 | $200 | $238 | $275 |
| 7.9% | $119 | $155 | $191 | $227 | $263 |
| 8.9% | $114 | $148 | $183 | $217 | $251 |
| 9.9% | $109 | $142 | $174 | $207 | $240 |
Current price: $93.95. Green = undervalued, Red = overvalued.
Based on default parameters
This is an unlevered Free Cash Flow to Firm (FCFF) model with a 5-year projection period. Revenue, expenses, D&A, and working capital are projected using the same line-by-line approach as the Growth Exit models. The key difference is the terminal value methodology: instead of assuming perpetual cash flow growth, the terminal value is calculated by applying the industry peer median EV/EBITDA multiple to the projected Year 6 EBITDA.
Using a peer exit multiple anchors the terminal value to how the market currently prices comparable companies, rather than relying on a theoretical perpetual growth assumption. This approach captures relative valuation dynamics and is particularly useful when a company is expected to converge toward industry-average profitability over time. The sensitivity matrix shows how fair value changes across different WACC and EV/EBITDA multiple scenarios.