Using the Earnings Power Value framework with a WACC of 8.4% and normalized earnings of $9.8B, Caterpillar Inc. has a fair value of $178.41 per share. The EPV range is $140.43 – $233.02 based on WACC sensitivity (6.9% – 9.9%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 9,776 | 9,776 | 9,776 |
| (/) WACC | 9.9% | 8.4% | 6.9% |
| Enterprise Value | 99,211 | 117,026 | 142,638 |
| (-) Net debt | 33,350 | 33,350 | 33,350 |
| Equity Value | 65,861 | 83,676 | 109,288 |
| (/) Outstanding shares | 469 | 469 | 469 |
| Fair Price | $140.43 | $178.41 | $233.02 |
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.