Using the Earnings Power Value framework with a WACC of 9.2% and normalized earnings of $1.3B, Cadence Design Systems, Inc. has a fair value of $53.00 per share. The EPV range is $45.83 – $62.95 based on WACC sensitivity (7.7% – 10.7%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,285 | 1,285 | 1,285 |
| (/) WACC | 10.7% | 9.2% | 7.7% |
| Enterprise Value | 12,006 | 13,963 | 16,683 |
| (-) Net debt | -521 | -521 | -521 |
| Equity Value | 12,527 | 14,484 | 17,205 |
| (/) Outstanding shares | 273 | 273 | 273 |
| Fair Price | $45.83 | $53.00 | $62.95 |
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.