Using the Earnings Power Value framework with a WACC of 8.1% and normalized earnings of $69.7B, Alphabet Inc. has a fair value of $66.64 per share. The EPV range is $55.74 – $82.47 based on WACC sensitivity (6.6% – 9.6%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 69,658 | 69,658 | 69,658 |
| (/) WACC | 9.6% | 8.1% | 6.6% |
| Enterprise Value | 722,981 | 856,294 | 1,049,886 |
| (-) Net debt | 41,327 | 41,327 | 41,327 |
| Equity Value | 681,654 | 814,967 | 1,008,559 |
| (/) Outstanding shares | 12,230 | 12,230 | 12,230 |
| Fair Price | $55.74 | $66.64 | $82.47 |
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.