Using the Earnings Power Value framework with a WACC of 8.5% and normalized earnings of $653.1M, Allegion plc has a fair value of $66.57 per share. The EPV range is $53.25 – $85.58 based on WACC sensitivity (7.0% – 10.0%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 653 | 653 | 653 |
| (/) WACC | 10.0% | 8.5% | 7.0% |
| Enterprise Value | 6,529 | 7,681 | 9,326 |
| (-) Net debt | 1,923 | 1,923 | 1,923 |
| Equity Value | 4,606 | 5,758 | 7,403 |
| (/) Outstanding shares | 87 | 87 | 87 |
| Fair Price | $53.25 | $66.57 | $85.58 |
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.