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Arthur J. Gallagher & Co. (AJG) Intrinsic Value

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

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Arthur J. Gallagher & Co. (AJG)

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Intrinsic Value (DCF)

Current$264.84
→
Intrinsic$190.49
-28%
$129.80$190.49$311.17
Market implies 26% growth for 5 years
AJG trades at a premium to our conservative estimate — investors expect above-average performance.
At $265, the market prices in continued strong cash flow growth (26%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $130 → Bull $311. Current price implies expectations above the base case, closer to bull expectations.
Discount ↓Growth →13%15%17%19%
8%$236$256$277$299
10%$163$177$190$205
12%$125$135$145$156
14%$101$109$117$125

Bull Case

  • Bull case ($311) offers 17% upside at 20% growth, 8% discount

Bear Case

  • Bear case ($130) implies 51% downside at 14% growth, 12% discount
  • Price reflects 26% growth expectations vs 17% historical — high bar to clear
  • Trading 28% above base case — execution must exceed assumptions to justify
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5-Year Net Income Projection

Year 1$1.71B
Year 2$2.00B
Year 3$2.34B
Year 4$2.74B
Year 5$3.20B
Terminal$50.69B

📐 Model Inputs

Growth Rate16.9%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Net Income$1.46BTTM 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 AJG stock undervalued or overvalued?
🔴 OVERVALUED

AJG trades at $264.84 vs. our DCF-derived intrinsic value of $190.49, implying -28% downside. Using a 9.5% WACC and 16.9% FCF growth assumption, the current price requires growth rates above our estimates to be justified. Even our bull case ($283.48) suggests limited upside.

What is AJG's intrinsic value?

Using a 5-year DCF model: Base FCF of $1.46B, projected at 16.9% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $-1.50B net debt and dividing by 0.22B shares: Bear $127.95 | Base $190.49 | Bull $283.48. Current price $264.84 implies -28% to base case.

How is AJG's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 16.9% 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=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($41.15B).

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: 28.1x.