Using the Earnings Power Value framework with a WACC of 7.2% and normalized earnings of $2.1B, Devon Energy Corporation has a fair value of $34.97 per share. The EPV range is $26.94 – $47.20 based on WACC sensitivity (5.7% – 8.7%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,119 | 2,119 | 2,119 |
| (/) WACC | 8.7% | 7.2% | 5.7% |
| Enterprise Value | 24,297 | 29,343 | 37,036 |
| (-) Net debt | 7,349 | 7,349 | 7,349 |
| Equity Value | 16,948 | 21,994 | 29,687 |
| (/) Outstanding shares | 629 | 629 | 629 |
| Fair Price | $26.94 | $34.97 | $47.20 |
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.