Using the Earnings Power Value framework with a WACC of 8.6% and normalized earnings of $1.2B, Microchip Technology Incorporated has a fair value of $16.69 per share. The EPV range is $12.86 – $22.13 based on WACC sensitivity (7.1% – 10.1%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,194 | 1,194 | 1,194 |
| (/) WACC | 10.1% | 8.6% | 7.1% |
| Enterprise Value | 11,805 | 13,861 | 16,784 |
| (-) Net debt | 4,894 | 4,894 | 4,894 |
| Equity Value | 6,910 | 8,966 | 11,890 |
| (/) Outstanding shares | 537 | 537 | 537 |
| Fair Price | $12.86 | $16.69 | $22.13 |
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.