Willis Towers Watson (WTW)

Total return at 5 years: 16.7%/year = 15.6% appreciation + 1.1% dividend. The target price ($616) is ex-dividend; the $22 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $514 · Multiples $514) exceeds the market price ($298).

Today — with margin of safety: at $298 trades ~41.9% below its value discounted to today (~$514) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($616) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($298) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-4.5%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.5 bn of owner earnings in year 5 (vs ~$2.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBIT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM ended 30-Jun-2026 (US$9,912M of revenue, US$2,246M of EBIT), which by construction excludes the goodwill impairment of ~US$1,042M associated with the sale of TRANZACT (Dec-2024) and the non-recurring US$750M Willis Re earnout received in the first half of 2025: both fall outside the TTM rolling window (FY2025 + H1-2026 − H1-2025). The year-1 path starts from the current guidance in the release of 30-Jul-2026 (8-K, Item 2.02): mid-single-digit organic growth in both segments (Health, Wealth & Career and Risk & Broking), plus Newfront's full-year contribution (closed 27-Jan-2026, expected post-closing revenue of ~US$250M) and the same guided operating margin increase by segment (~100 basis points a year in R&B, incremental expansion in HWC). The margin expands from 22.7% to 25.5% by year 5 with the Propel plan of artificial-intelligence-driven acceleration (projected net savings of ~US$350M by 2028). Share repurchases (~US$1,700M a year, 2026 guidance of US$1,000M or more) are modeled explicitly via `sharesPath`, with no additional cash accumulation. TTM capex (US$234M) sits below TTM depreciation and amortization (~US$430M, elevated by the amortization of Newfront intangibles), so practically all capex is maintenance.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (EV falls as cash increases). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $616 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $298, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $616 in 5 years plus $22 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $514. Against the current market price ($298), the margin of safety is 41.9% (trades below the maximum → there is margin) and the total return at that price would be 16.7% annually.

• Entry multiple. 15× EV/EBIT, within the sector band, moderate relative to the moat and quality of the business.
• Distance to high. No market punishment that would explain a discount.
• Estimated return. +17% estimated annual over 5 years in the base case.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (98%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. Above the 10% bar, supported by a capital-light business.
• Quality of reported earnings. GAAP results for 2024-2025 included several non-recurring items that distort the year-over-year comparison.
• Cash generation. TTM operating cash flow of US$1,923 million, growing with margin expansion.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Health, Wealth & Career bills consulting and benefits administration fees, largely multi-year; Risk & Broking bills brokerage commissions tied to the level of premiums placed (more than US$34,000 million annually) plus consulting and software fees for insurers. The share count falls steadily from the buyback.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Organic guidance. Mid-single-digit for both segments under the company's current guidance.
• Inorganic contribution. Newfront adds ~US$250 million of revenue post-close in 2026.
• Structural risk. The migration to defined-contribution plans pressures long-term demand for pension consulting.

• Capital-light model. Revenue from commissions and fees, with no proprietary underwriting risk.
• Segment diversification. Two segments of similar nature (consulting and brokerage), both capital-light.
• Client concentration. No client exceeded 10% of consolidated revenue in 2023-2025.
• Premium cyclicality. Brokerage commissions depend on the level of premiums written by insurers, exposed to the insurance market cycle.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.8x
• !Interest coverage (EBIT / interest)7.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 98% of ROIC
• !Value creation (ROIC − 10% bar)+5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.5x — no over-investment
• !Float / working capitalConsumes cash $0.3 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 2.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt of ~US$6,530 million against equity of ~US$7,688 million.
• Liquidity. Cash and short-term investments of ~US$1,661 million.
• Free cash generation. TTM free cash flow of ~US$1,689 million, covering the buyback and the dividend.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO tenure. Carl Hess has led the company since 2022 with more than two decades at the firm as an actuary.
• Capital allocation. Prioritizes the share buyback (~US$1,700 million annually) over the dividend and organic reinvestment.
• Skin in the game. No family control block or founder; ownership dominated by institutions.

• The 2024 GAAP result (net loss of US$98 million) following the BDO/TRANZACT goodwill impairment still weighs on market perception, despite being a non-recurring charge.
• The multiple non-recurring items in the 2024-2025 income statement (impairment, earnout, transaction and transformation expenses) make it hard to read the true recurring earnings.
• The Propel plan was only announced in July 2026, so the market has not yet fully priced in the projected net savings of US$350 million by 2028.

None of these sources implies a broken business: they are non-recurring GAAP items and a recently announced efficiency plan, the classic pattern of perception lagging the reality of the business.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +5%/year (+28% total): the margin of safety protects the downside. The bull (+23%/year, +180% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• AI disintermediation. Generative artificial intelligence tools could let clients internalize work currently outsourced.
• M&A integration. Newfront and Cushon need to integrate smoothly to sustain the expected synergies.
• Cybersecurity. Handles confidential health and financial data across dozens of jurisdictions with fragmented regulatory frameworks.
• Premium-rate cycle. A sustained softening of the cycle would compress Risk & Broking commissions.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 15% above the 10% bar, with a +42% margin → a quality business at a good price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 2.4 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 15% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -5% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +4%/yr, bull-scenario ceiling +22%/yr over 5y and a +42% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -5%, within what we project (6%) — the story squares with the numbers.