Using the Earnings Power Value framework with a WACC of 7.1% and normalized earnings of $1.8B, Cardinal Health, Inc. has a fair value of $84.02 per share. The EPV range is $65.39 – $112.67 based on WACC sensitivity (5.6% – 8.6%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,828 | 1,828 | 1,828 |
| (/) WACC | 8.6% | 7.1% | 5.6% |
| Enterprise Value | 21,295 | 25,805 | 32,737 |
| (-) Net debt | 5,471 | 5,471 | 5,471 |
| Equity Value | 15,824 | 20,334 | 27,266 |
| (/) Outstanding shares | 242 | 242 | 242 |
| Fair Price | $65.39 | $84.02 | $112.67 |
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.