Using the Earnings Power Value framework with a WACC of 6.8% and normalized earnings of $5.0B, Costco Wholesale Corporation has a fair value of $177.66 per share. The EPV range is $148.14 – $223.76 based on WACC sensitivity (5.3% – 8.3%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 4,998 | 4,998 | 4,998 |
| (/) WACC | 8.3% | 6.8% | 5.3% |
| Enterprise Value | 59,905 | 73,036 | 93,542 |
| (-) Net debt | -5,988 | -5,988 | -5,988 |
| Equity Value | 65,893 | 79,024 | 99,530 |
| (/) Outstanding shares | 445 | 445 | 445 |
| Fair Price | $148.14 | $177.66 | $223.76 |
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.