Using the Earnings Power Value framework with a WACC of 6.9% and normalized earnings of $5.2B, Target Corporation has a fair value of $163.04 per share. The EPV range is $134.01 – $208.10 based on WACC sensitivity (5.4% – 8.4%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 5,159 | 5,159 | 5,159 |
| (/) WACC | 8.4% | 6.9% | 5.4% |
| Enterprise Value | 61,158 | 74,386 | 94,916 |
| (-) Net debt | 104 | 104 | 104 |
| Equity Value | 61,054 | 74,282 | 94,812 |
| (/) Outstanding shares | 456 | 456 | 456 |
| Fair Price | $134.01 | $163.04 | $208.10 |
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.