Using the Earnings Power Value framework with a WACC of 5.6% and normalized earnings of $20.6B, The Kroger Co. has a fair value of $532.93 per share. The EPV range is $413.02 – $741.14 based on WACC sensitivity (4.1% – 7.1%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 20,647 | 20,647 | 20,647 |
| (/) WACC | 7.1% | 5.6% | 4.1% |
| Enterprise Value | 291,872 | 370,415 | 506,794 |
| (-) Net debt | 21,346 | 21,346 | 21,346 |
| Equity Value | 270,526 | 349,069 | 485,448 |
| (/) Outstanding shares | 655 | 655 | 655 |
| Fair Price | $413.02 | $532.93 | $741.14 |
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.