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Pegasystems Inc. (PEGA) Intrinsic Value

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

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Pegasystems Inc. (PEGA)

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Intrinsic Value (DCF)

Current$56.14
→
Intrinsic$65.49
+17%
$44.21$65.49$105.86
Market implies 21% growth for 5 years
PEGA shows 17% potential upside using 25% growth — reasonable if fundamentals hold.
At $56, the market prices in continued strong cash flow growth (21%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $44 → Bull $106. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →21%23%25%27%
8%$81$87$94$102
10%$56$61$65$71
12%$43$46$49$53
14%$34$37$39$42

Bull Case

  • Bull case ($106) offers 89% upside at 30% growth, 9% discount
  • 14% margin of safety vs. base case estimate
  • Market-implied growth (21%) ≤ historical CAGR (25%)

Bear Case

  • Bear case ($44) implies 21% downside at 20% growth, 12% discount
  • Using 25% growth — aggressive, watch for mean reversion
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5-Year Free Cash Flow Projection

Year 1$422.77M
Year 2$528.46M
Year 3$660.57M
Year 4$825.72M
Year 5$1.03B
Terminal$15.19B

📐 Model Inputs

Growth Rate25.0%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$338.21MTTM 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. See FAQ below for full methodology.

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Frequently Asked Questions

Is PEGA stock undervalued or overvalued?
🟡 FAIRLY VALUED

PEGA trades at $56.14, within 10% of our $54.05 intrinsic value estimate. At 10.0% WACC and 25.0% FCF growth, the market is pricing in assumptions roughly aligned with the 5-year historical CAGR. The valuation range spans $35.04 (bear) to $82.03 (bull).

What is PEGA's intrinsic value?

Using a 5-year DCF model: Base FCF of $338M, projected at 25.0% 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 $213M net debt and dividing by 0.18B shares: Bear $35.04 | Base $54.05 | Bull $82.03. Current price $56.14 implies -10% to base case.

How is PEGA's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 25.0% 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 ($9.90B).

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.