Using the Earnings Power Value framework with a WACC of 8.0% and normalized earnings of $2.6B, AutoZone, Inc. has a fair value of $1,187.80 per share. The EPV range is $890.58 – $1,621.96 based on WACC sensitivity (6.5% – 9.5%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,604 | 2,604 | 2,604 |
| (/) WACC | 9.5% | 8.0% | 6.5% |
| Enterprise Value | 27,375 | 32,501 | 39,988 |
| (-) Net debt | 12,017 | 12,017 | 12,017 |
| Equity Value | 15,358 | 20,484 | 27,971 |
| (/) Outstanding shares | 17 | 17 | 17 |
| Fair Price | $890.58 | $1,187.80 | $1,621.96 |
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.