Using the Earnings Power Value framework with a WACC of 7.8% and normalized earnings of $1.5B, Darden Restaurants, Inc. has a fair value of $112.15 per share. The EPV range is $85.99 – $150.69 based on WACC sensitivity (6.3% – 9.3%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,509 | 1,509 | 1,509 |
| (/) WACC | 9.3% | 7.8% | 6.3% |
| Enterprise Value | 16,171 | 19,268 | 23,831 |
| (-) Net debt | 5,990 | 5,990 | 5,990 |
| Equity Value | 10,181 | 13,278 | 17,842 |
| (/) Outstanding shares | 118 | 118 | 118 |
| Fair Price | $85.99 | $112.15 | $150.69 |
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.