Using an unlevered Free Cash Flow to Firm (FCFF) model, we project A. O. Smith Corporation's cash flows over 5 years with line-by-line expense modeling. Revenue is projected revenue growing from 3.4% to 2.0% 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 57, DPO 96, DIO 77). At a 8.9% WACC with mid-year discounting, the terminal value (83% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 20.7x to Year 6 EBITDA. After subtracting net debt, the equity value implies a fair price of $98.99 per share, suggesting AOS is undervalued by 51.2% at the current price of $65.48.
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 | 636 | 661 | 688 | 721 | 736 | 754 |
| (−) Net Interest | 10 | 10 | 10 | 11 | 11 | 11 |
| (+) D&A | 79 | 81 | 84 | 88 | 85 | 87 |
| EBITDA | 725 | 752 | 783 | 820 | 832 | 853 |
| (−) Tax | 112 | 117 | 122 | 128 | 130 | — |
| (−) CapEx | 84 | 87 | 90 | 95 | 97 | — |
| (−) ΔWC | -68 | 19 | 21 | 26 | 11 | — |
| Free Cash Flow (FCF) | 597 | 529 | 550 | 572 | 594 | — |
| Peers' EBITDA Multiple | 20.7x | |||||
| Terminal Value | 17,688 | |||||
| WACC / Discount Rate | 8.89% | |||||
| Timing of FCF (mid year) | 0.5 | 1.5 | 2.5 | 3.5 | 4.5 | 5 |
| Present Value of FCF | 572 | 466 | 444 | 425 | 405 | 11,555 |
| Enterprise Value | 13,866 | |||||
| Projection Period | 2,311 | 16.7% | ||||
| Terminal Value | 11,555 | 83.3% | ||||
| (−) Current Net Debt | 18 | |||||
| Equity Value | 13,849 | |||||
| (÷) Outstanding Shares | 140M | |||||
| Fair Price | $99 | +51.1% | ||||
| WACC \ EV/EBITDA Exit Multiple | 16.7x | 18.7x | 20.7x | 22.7x | 24.7x |
|---|---|---|---|---|---|
| 6.9% | $90 | $99 | $108 | $116 | $125 |
| 7.9% | $87 | $95 | $103 | $112 | $120 |
| 8.9% | $83 | $91 | $99 | $107 | $115 |
| 9.9% | $80 | $87 | $95 | $103 | $110 |
| 10.9% | $77 | $84 | $91 | $98 | $106 |
Current price: $65.48. 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.