Using the Earnings Power Value framework with a WACC of 7.8% and normalized earnings of $4.8B, Realty Income Corporation has a fair value of $31.80 per share. The EPV range is $20.94 – $47.80 based on WACC sensitivity (6.3% – 9.3%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 4,798 | 4,798 | 4,798 |
| (/) WACC | 9.3% | 7.8% | 6.3% |
| Enterprise Value | 51,362 | 61,188 | 75,664 |
| (-) Net debt | 32,418 | 32,418 | 32,418 |
| Equity Value | 18,944 | 28,770 | 43,245 |
| (/) Outstanding shares | 905 | 905 | 905 |
| Fair Price | $20.94 | $31.80 | $47.80 |
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.