Using the Earnings Power Value framework with a WACC of 7.3% and normalized earnings of $1.9B, Baker Hughes Company has a fair value of $22.47 per share. The EPV range is $18.04 – $29.20 based on WACC sensitivity (5.8% – 8.8%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,874 | 1,874 | 1,874 |
| (/) WACC | 8.8% | 7.3% | 5.8% |
| Enterprise Value | 21,360 | 25,765 | 32,458 |
| (-) Net debt | 3,429 | 3,429 | 3,429 |
| Equity Value | 17,931 | 22,336 | 29,029 |
| (/) Outstanding shares | 994 | 994 | 994 |
| Fair Price | $18.04 | $22.47 | $29.20 |
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.