Using the Earnings Power Value framework with a WACC of 7.0% and normalized earnings of $1.9B, Archer-Daniels-Midland Company has a fair value of $39.83 per share. The EPV range is $30.06 – $54.96 based on WACC sensitivity (5.5% – 8.5%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,857 | 1,857 | 1,857 |
| (/) WACC | 8.5% | 7.0% | 5.5% |
| Enterprise Value | 21,945 | 26,673 | 33,997 |
| (-) Net debt | 7,395 | 7,395 | 7,395 |
| Equity Value | 14,550 | 19,278 | 26,602 |
| (/) Outstanding shares | 484 | 484 | 484 |
| Fair Price | $30.06 | $39.83 | $54.96 |
Earnings Power Value (EPV) estimates what a company is worth based on its current normalized earnings, assuming zero growth. It values the business as a perpetuity: Normalized Earnings / WACC. This gives a conservative floor value — the company's worth if it never grows but maintains its current profitability.
The model normalizes earnings by: (1) using sustainable gross margins (5-year average) applied to current revenue, (2) deducting maintenance-level operating expenses (average R&D + SG&A as % of revenue), (3) applying the average effective tax rate, and (4) subtracting the average excess of CapEx over D&A (net reinvestment needed to maintain current capacity).
EPV is most useful as a comparison anchor: if the market price is below EPV, the stock may be undervalued even without any growth. If market price exceeds EPV, the premium reflects growth expectations — which may or may not materialize.