Using the Earnings Power Value framework with a WACC of 6.5% and normalized earnings of $3.1B, Colgate-Palmolive Company has a fair value of $50.89 per share. The EPV range is $39.86 – $68.50 based on WACC sensitivity (5.0% – 8.0%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 3,138 | 3,138 | 3,138 |
| (/) WACC | 8.0% | 6.5% | 5.0% |
| Enterprise Value | 39,029 | 47,980 | 62,259 |
| (-) Net debt | 6,700 | 6,700 | 6,700 |
| Equity Value | 32,329 | 41,280 | 55,559 |
| (/) Outstanding shares | 811 | 811 | 811 |
| Fair Price | $39.86 | $50.89 | $68.50 |
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.