Using the Earnings Power Value framework with a WACC of 6.6% and normalized earnings of $3.6B, Diamondback Energy, Inc. has a fair value of $136.96 per share. The EPV range is $102.53 – $191.51 based on WACC sensitivity (5.1% – 8.1%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 3,581 | 3,581 | 3,581 |
| (/) WACC | 8.1% | 6.6% | 5.1% |
| Enterprise Value | 44,022 | 53,976 | 69,745 |
| (-) Net debt | 14,383 | 14,383 | 14,383 |
| Equity Value | 29,639 | 39,593 | 55,362 |
| (/) Outstanding shares | 289 | 289 | 289 |
| Fair Price | $102.53 | $136.96 | $191.51 |
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.