Using the Earnings Power Value framework with a WACC of 7.5% and normalized earnings of $6.2B, PayPal Holdings, Inc. has a fair value of $82.64 per share. The EPV range is $68.54 – $103.77 based on WACC sensitivity (6.0% – 9.0%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 6,152 | 6,152 | 6,152 |
| (/) WACC | 9.0% | 7.5% | 6.0% |
| Enterprise Value | 68,288 | 81,931 | 102,385 |
| (-) Net debt | 1,938 | 1,938 | 1,938 |
| Equity Value | 66,350 | 79,993 | 100,447 |
| (/) Outstanding shares | 968 | 968 | 968 |
| Fair Price | $68.54 | $82.64 | $103.77 |
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.