Using the Earnings Power Value framework with a WACC of 8.7% and normalized earnings of $3.8B, HP Inc. has a fair value of $38.46 per share. The EPV range is $31.68 – $48.08 based on WACC sensitivity (7.2% – 10.2%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 3,802 | 3,802 | 3,802 |
| (/) WACC | 10.2% | 8.7% | 7.2% |
| Enterprise Value | 37,379 | 43,845 | 53,015 |
| (-) Net debt | 7,192 | 7,192 | 7,192 |
| Equity Value | 30,187 | 36,653 | 45,823 |
| (/) Outstanding shares | 953 | 953 | 953 |
| Fair Price | $31.68 | $38.46 | $48.08 |
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.