Using the Earnings Power Value framework with a WACC of 6.3% and normalized earnings of $5.9B, The Southern Company has a fair value of $27.00 per share. The EPV range is $10.64 – $53.63 based on WACC sensitivity (4.8% – 7.8%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 5,912 | 5,912 | 5,912 |
| (/) WACC | 7.8% | 6.3% | 4.8% |
| Enterprise Value | 75,975 | 94,120 | 123,650 |
| (-) Net debt | 64,179 | 64,179 | 64,179 |
| Equity Value | 11,796 | 29,941 | 59,471 |
| (/) Outstanding shares | 1,109 | 1,109 | 1,109 |
| Fair Price | $10.64 | $27.00 | $53.63 |
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.