Using the Earnings Power Value framework with a WACC of 7.4% and normalized earnings of $2.2B, Dow Inc. has a fair value of $18.91 per share. The EPV range is $11.97 – $29.38 based on WACC sensitivity (5.9% – 8.9%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,159 | 2,159 | 2,159 |
| (/) WACC | 8.9% | 7.4% | 5.9% |
| Enterprise Value | 24,300 | 29,237 | 36,692 |
| (-) Net debt | 15,782 | 15,782 | 15,782 |
| Equity Value | 8,518 | 13,455 | 20,910 |
| (/) Outstanding shares | 712 | 712 | 712 |
| Fair Price | $11.97 | $18.91 | $29.38 |
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.