Using the Earnings Power Value framework with a WACC of 7.0% and normalized earnings of $1.8B, Equity Residential has a fair value of $43.01 per share. The EPV range is $31.48 – $60.82 based on WACC sensitivity (5.5% – 8.5%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,786 | 1,786 | 1,786 |
| (/) WACC | 8.5% | 7.0% | 5.5% |
| Enterprise Value | 20,967 | 25,450 | 32,371 |
| (-) Net debt | 8,728 | 8,728 | 8,728 |
| Equity Value | 12,239 | 16,722 | 23,643 |
| (/) Outstanding shares | 389 | 389 | 389 |
| Fair Price | $31.48 | $43.01 | $60.82 |
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.