Using the Earnings Power Value framework with a WACC of 6.9% and normalized earnings of $1.2B, Invitation Homes Inc. has a fair value of $15.78 per share. The EPV range is $10.57 – $23.88 based on WACC sensitivity (5.4% – 8.4%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,240 | 1,240 | 1,240 |
| (/) WACC | 8.4% | 6.9% | 5.4% |
| Enterprise Value | 14,731 | 17,926 | 22,891 |
| (-) Net debt | 8,250 | 8,250 | 8,250 |
| Equity Value | 6,481 | 9,676 | 14,641 |
| (/) Outstanding shares | 613 | 613 | 613 |
| Fair Price | $10.57 | $15.78 | $23.88 |
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.