Using the Earnings Power Value framework with a WACC of 8.7% and normalized earnings of $174.5M, Carvana Co. has a fair value of $16.54 per share. The EPV range is $15.21 – $18.42 based on WACC sensitivity (7.2% – 10.2%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 174 | 174 | 174 |
| (/) WACC | 10.2% | 8.7% | 7.2% |
| Enterprise Value | 1,717 | 2,015 | 2,437 |
| (-) Net debt | -1,694 | -1,694 | -1,694 |
| Equity Value | 3,411 | 3,709 | 4,131 |
| (/) Outstanding shares | 224 | 224 | 224 |
| Fair Price | $15.21 | $16.54 | $18.42 |
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.