At $87.56 Donaldson trades 1.4% below our DCF base case of $88.79. That is why the note says HOLD: the sensitivity grid runs from $60.52 to $118.34 per share, so the price sits inside it, and our rule gives a BUY only when every cell is above the price and a SELL only when every cell is below it. A HOLD here does not mean we are confident the shares are fairly priced; it means the valuation does not clear a bar in either direction.
The price implies a starting free cash flow of about $420M at our assumptions, 0.99x the FY2026 base of $426.3M, so the market is paying roughly for our path and little more. That path is 14.0% growth in year one, fading to 3.0% by year ten, and it compounds at 8.2% for five years against FY2024 to FY2026 free cash flow growth of 2.4% a year. Terminal value is 60.7% of the total, which is why the answer moves with the discount rate and terminal growth: $80 to $94 across the grid at an 8.5% discount rate.
The guidance is the test. Management expects FY2027 sales growth of 5.5% to 9.5% and EPS of $4.22 to $4.38, including about $0.12 of dilution from the Facet acquisition, with capital expenditures of $70M to $90M and free cash flow conversion of 95% to 105%. Our year-one free cash flow of $486.0M sits inside the roughly $461M to $529M that guided EPS, about 115M average shares and that conversion range imply. Two alternatives show the sensitivity: the three-year average free cash flow of $391.0M gives $81.44, and a faster-growing path gives $95.84.
The peers do not settle it. On trailing P/E, Pentair at 13.5x implies $52.12 per Donaldson share, while Parker-Hannifin at 33.6x and IDEX at 33.9x imply $129.35 and $130.61; Donaldson itself trades at 22.7x. On EV/EBITDA the range runs from Pentair at 10.7x ($55.97) to Parker-Hannifin at 21.4x ($121.19), with Donaldson at 15.9x. We use no peer median: Pentair’s earnings are depressed by a Pool channel destock, and Parker-Hannifin is many times Donaldson’s size.
A path to the guided EPS with free cash flow near the top of the $461M to $529M range would move the case toward the upper part of the grid; a slower Industrial Solutions recovery or a harder Facet integration would weigh on it. Two dates to watch: the annual meeting on November 20, 2026, and first-quarter FY2027 results for the quarter ending October 31, 2026, the first read on guidance against integration.
Related notes: Donaldson Company (DCI)
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