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The Hanover Insurance Group, Inc. (THG) Intrinsic Value

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

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The Hanover Insurance Group, Inc. (THG)

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Intrinsic Value (DCF)

Current$170.15
→
Intrinsic$202.93
+19%
$135.84$202.93$330.49
Market implies 4% growth for 5 years
THG shows 19% potential upside using 8% growth — reasonable if fundamentals hold.
At $170, the market prices in only 4% growth — below historical 8%, suggesting low expectations.
Range: Bear $136 → Bull $330. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →4%6%8%10%
8%$242$265$290$317
10%$170$186$203$221
12%$130$142$155$168
14%$104$114$124$135

Bull Case

  • Bull case ($330) offers 94% upside at 10% growth, 9% discount
  • 16% margin of safety vs. base case estimate
  • Market-implied growth (4%) ≤ historical CAGR (8%)

Bear Case

  • Bear case ($136) implies 20% downside at 6% growth, 12% discount
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5-Year Net Income Projection

Year 1$460.08M
Year 2$496.89M
Year 3$536.64M
Year 4$579.57M
Year 5$625.93M
Terminal$9.21B

📐 Model Inputs

Growth Rate8.0%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Net Income$426.00MTTM 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 THG stock undervalued or overvalued?
🟡 FAIRLY VALUED

THG trades at $170.15, within 10% of our $202.93 intrinsic value estimate. At 10.0% WACC and 8.0% FCF growth, the market is pricing in assumptions roughly aligned with the 5-year historical CAGR. The valuation range spans $144.36 (bear) to $281.25 (bull).

What is THG's intrinsic value?

Using a 5-year DCF model: Base FCF of $426M, projected at 8.0% 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 $349M net debt and dividing by 0.04B shares: Bear $144.36 | Base $202.93 | Bull $281.25. Current price $170.15 implies +15% to base case.

How is THG's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 8.0% 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 ($7.74B).

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: 18.2x.