Using the Earnings Power Value framework with a WACC of 7.4% and normalized earnings of $8.6B, Marsh & McLennan Companies, Inc. has a fair value of $199.68 per share. The EPV range is $159.60 – $260.12 based on WACC sensitivity (5.9% – 8.9%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 8,635 | 8,635 | 8,635 |
| (/) WACC | 8.9% | 7.4% | 5.9% |
| Enterprise Value | 96,966 | 116,606 | 146,223 |
| (-) Net debt | 18,762 | 18,762 | 18,762 |
| Equity Value | 78,204 | 97,844 | 127,461 |
| (/) Outstanding shares | 490 | 490 | 490 |
| Fair Price | $159.60 | $199.68 | $260.12 |
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.