Using the Earnings Power Value framework with a WACC of 7.7% and normalized earnings of $14.4B, Merck & Co., Inc. has a fair value of $60.63 per share. The EPV range is $48.38 – $78.83 based on WACC sensitivity (6.2% – 9.2%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 14,439 | 14,439 | 14,439 |
| (/) WACC | 9.2% | 7.7% | 6.2% |
| Enterprise Value | 157,268 | 187,981 | 233,600 |
| (-) Net debt | 35,969 | 35,969 | 35,969 |
| Equity Value | 121,299 | 152,012 | 197,631 |
| (/) Outstanding shares | 2,507 | 2,507 | 2,507 |
| Fair Price | $48.38 | $60.63 | $78.83 |
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.