Using the Earnings Power Value framework with a WACC of 8.7% and normalized earnings of $2.9B, Parker-Hannifin Corporation has a fair value of $183.66 per share. The EPV range is $146.31 – $236.56 based on WACC sensitivity (7.2% – 10.2%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,880 | 2,880 | 2,880 |
| (/) WACC | 10.2% | 8.7% | 7.2% |
| Enterprise Value | 28,223 | 33,085 | 39,972 |
| (-) Net debt | 9,173 | 9,173 | 9,173 |
| Equity Value | 19,050 | 23,912 | 30,799 |
| (/) Outstanding shares | 130 | 130 | 130 |
| Fair Price | $146.31 | $183.66 | $236.56 |
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.