Using the Earnings Power Value framework with a WACC of 6.1% and normalized earnings of $757.4M, Dollar Tree, Inc. has a fair value of $41.53 per share. The EPV range is $29.55 – $61.37 based on WACC sensitivity (4.6% – 7.6%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 757 | 757 | 757 |
| (/) WACC | 7.6% | 6.1% | 4.6% |
| Enterprise Value | 10,003 | 12,474 | 16,567 |
| (-) Net debt | 3,906 | 3,906 | 3,906 |
| Equity Value | 6,097 | 8,568 | 12,661 |
| (/) Outstanding shares | 206 | 206 | 206 |
| Fair Price | $29.55 | $41.53 | $61.37 |
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.