Using the Earnings Power Value framework with a WACC of 5.5% and normalized earnings of $2.6B, General Mills, Inc. has a fair value of $57.85 per share. The EPV range is $39.70 – $89.60 based on WACC sensitivity (4.0% – 7.0%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,594 | 2,594 | 2,594 |
| (/) WACC | 7.0% | 5.5% | 4.0% |
| Enterprise Value | 37,068 | 47,182 | 64,886 |
| (-) Net debt | 14,933 | 14,933 | 14,933 |
| Equity Value | 22,135 | 32,249 | 49,953 |
| (/) Outstanding shares | 558 | 558 | 558 |
| Fair Price | $39.70 | $57.85 | $89.60 |
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.