Using the Earnings Power Value framework with a WACC of 6.0% and normalized earnings of $40.7B, CVS Health Corporation has a fair value of $464.52 per share. The EPV range is $358.48 – $640.96 based on WACC sensitivity (4.5% – 7.5%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 40,651 | 40,651 | 40,651 |
| (/) WACC | 7.5% | 6.0% | 4.5% |
| Enterprise Value | 540,711 | 675,483 | 899,742 |
| (-) Net debt | 85,081 | 85,081 | 85,081 |
| Equity Value | 455,630 | 590,402 | 814,661 |
| (/) Outstanding shares | 1,271 | 1,271 | 1,271 |
| Fair Price | $358.48 | $464.52 | $640.96 |
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.