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Arch Capital Group Ltd. (ACGL) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Arch Capital Group Ltd. (ACGL)

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Intrinsic Value (DCF)

Current$90.94
→
Intrinsic$375.11
+312%
$253.97$375.11$604.97
Market implies 1% growth for 5 years
DCF analysis suggests ACGL could have 312% upside at 24% growth — verify assumptions match your view.
At $91, the market prices in only 1% growth — below historical 24%, suggesting low expectations.
Range: Bear $254 → Bull $605. Current price implies expectations below the bear case — very conservative expectations.
Discount ↓Growth →20%22%24%26%
8%$461$499$540$582
10%$322$348$375$404
12%$244$264$284$306
14%$196$211$227$244

Bull Case

  • Bull case ($605) offers 565% upside at 28% growth, 9% discount
  • Price below even worst-case scenario — strong margin of safety
  • Market-implied growth (1%) ≤ historical CAGR (24%)

Bear Case

  • Bear case ($254) with 19% growth, 12% discount rate
  • Using 24% growth — aggressive, watch for mean reversion
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5-Year Net Income Projection

Year 1$5.33B
Year 2$6.59B
Year 3$8.15B
Year 4$10.08B
Year 5$12.47B
Terminal$183.46B

📐 Model Inputs

Growth Rate23.7%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Net Income$4.31BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. Uses Net Income (FCF not meaningful for insurers). See FAQ below for full methodology.

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Frequently Asked Questions

Is ACGL stock undervalued or overvalued?
🟢 UNDERVALUED

ACGL trades at $90.94 vs. our DCF-derived intrinsic value of $326.05, implying +247% upside. At a 10.0% WACC and 23.7% projected FCF growth, the market appears to be underpricing the present value of ACGL's future cash flows. The bear case ($212.28) still suggests upside, providing margin of safety.

What is ACGL's intrinsic value?

Using a 5-year DCF model: Base FCF of $4.31B, projected at 23.7% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $1.75B net debt and dividing by 0.38B shares: Bear $212.28 | Base $326.05 | Bull $493.58. Current price $90.94 implies +247% to base case.

How is ACGL's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 23.7% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($126.23B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 29.3x.