Using the Earnings Power Value framework with a WACC of 9.2% and normalized earnings of $1.4B, Fortinet, Inc. has a fair value of $22.06 per share. The EPV range is $19.26 – $25.96 based on WACC sensitivity (7.7% – 10.7%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,384 | 1,384 | 1,384 |
| (/) WACC | 10.7% | 9.2% | 7.7% |
| Enterprise Value | 12,905 | 15,004 | 17,917 |
| (-) Net debt | -1,499 | -1,499 | -1,499 |
| Equity Value | 14,404 | 16,503 | 19,416 |
| (/) Outstanding shares | 748 | 748 | 748 |
| Fair Price | $19.26 | $22.06 | $25.96 |
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.