Equity Research Terminal Value
Sell-side equity research typically uses a two-stage DCF with Gordon Growth at the seam, then reconciles the implied target price to relative-valuation multiples for cross-check.
What sell-side research models tend to do
Long enough to capture margin expansion or contraction stories. Short enough that the explicit-period cash flows are recognisably the same business as today. Longer windows shift weight to the explicit forecast and away from terminal value.
2 to 3 percent for the United States; 1.5 to 2.5 percent for the eurozone; higher for emerging-market economies per IMF WEO long-horizon projections. Above 4 percent and the analyst should explain.
Equity research desks typically anchor WACC to the Damodaran industry benchmark and then adjust for company- specific leverage. A WACC that drifts more than 100bps from the industry benchmark needs justification.
Almost every published model ships a g-vs-WACC table showing target price across the corners. The reader's first move is to find the analyst's central estimate and evaluate the corners.
Reconcile DCF target to relative-valuation grid
A DCF target price that implies an EV/EBITDA materially above the peer-group range tells the reader the DCF is doing too much of the work. Best practice is to show DCF target alongside relative-valuation target across two or three multiples (EV/ EBITDA, EV/Sales, P/E forward) and a sum-of-parts table where relevant.