Using the Earnings Power Value framework with a WACC of 7.5% and normalized earnings of $22.4B, Johnson & Johnson has a fair value of $111.51 per share. The EPV range is $90.95 – $142.39 based on WACC sensitivity (6.0% – 9.0%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 22,381 | 22,381 | 22,381 |
| (/) WACC | 9.0% | 7.5% | 6.0% |
| Enterprise Value | 249,176 | 299,130 | 374,138 |
| (-) Net debt | 28,224 | 28,224 | 28,224 |
| Equity Value | 220,952 | 270,906 | 345,914 |
| (/) Outstanding shares | 2,429 | 2,429 | 2,429 |
| Fair Price | $90.95 | $111.51 | $142.39 |
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.