Using the Earnings Power Value framework with a WACC of 6.2% and normalized earnings of $2.3B, NRG Energy, Inc. has a fair value of $131.33 per share. The EPV range is $93.76 – $193.10 based on WACC sensitivity (4.7% – 7.7%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,349 | 2,349 | 2,349 |
| (/) WACC | 7.7% | 6.2% | 4.7% |
| Enterprise Value | 30,685 | 38,162 | 50,455 |
| (-) Net debt | 12,028 | 12,028 | 12,028 |
| Equity Value | 18,657 | 26,134 | 38,427 |
| (/) Outstanding shares | 199 | 199 | 199 |
| Fair Price | $93.76 | $131.33 | $193.10 |
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.