Using the Earnings Power Value framework with a WACC of 8.4% and normalized earnings of $1.2B, Leidos Holdings, Inc. has a fair value of $71.54 per share. The EPV range is $55.25 – $94.94 based on WACC sensitivity (6.9% – 9.9%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,189 | 1,189 | 1,189 |
| (/) WACC | 9.9% | 8.4% | 6.9% |
| Enterprise Value | 12,041 | 14,198 | 17,296 |
| (-) Net debt | 4,725 | 4,725 | 4,725 |
| Equity Value | 7,316 | 9,473 | 12,571 |
| (/) Outstanding shares | 132 | 132 | 132 |
| Fair Price | $55.25 | $71.54 | $94.94 |
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.