Using the Earnings Power Value framework with a WACC of 8.3% and normalized earnings of $2.5B, Norfolk Southern Corporation has a fair value of $63.86 per share. The EPV range is $43.48 – $93.24 based on WACC sensitivity (6.8% – 9.8%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,481 | 2,481 | 2,481 |
| (/) WACC | 9.8% | 8.3% | 6.8% |
| Enterprise Value | 25,332 | 29,913 | 36,517 |
| (-) Net debt | 15,557 | 15,557 | 15,557 |
| Equity Value | 9,775 | 14,356 | 20,960 |
| (/) Outstanding shares | 225 | 225 | 225 |
| Fair Price | $43.48 | $63.86 | $93.24 |
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.