Using the Earnings Power Value framework with a WACC of 8.3% and normalized earnings of $1.7B, Paychex, Inc. has a fair value of $46.71 per share. The EPV range is $38.09 – $59.16 based on WACC sensitivity (6.8% – 9.8%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,677 | 1,677 | 1,677 |
| (/) WACC | 9.8% | 8.3% | 6.8% |
| Enterprise Value | 17,182 | 20,303 | 24,809 |
| (-) Net debt | 3,394 | 3,394 | 3,394 |
| Equity Value | 13,788 | 16,909 | 21,415 |
| (/) Outstanding shares | 362 | 362 | 362 |
| Fair Price | $38.09 | $46.71 | $59.16 |
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.