Using the Earnings Power Value framework with a WACC of 6.1% and normalized earnings of $9.2B, PepsiCo, Inc. has a fair value of $79.77 per share. The EPV range is $58.16 – $115.46 based on WACC sensitivity (4.6% – 7.6%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 9,164 | 9,164 | 9,164 |
| (/) WACC | 7.6% | 6.1% | 4.6% |
| Enterprise Value | 120,600 | 150,262 | 199,272 |
| (-) Net debt | 40,742 | 40,742 | 40,742 |
| Equity Value | 79,858 | 109,520 | 158,530 |
| (/) Outstanding shares | 1,373 | 1,373 | 1,373 |
| Fair Price | $58.16 | $79.77 | $115.46 |
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.