Using the Earnings Power Value framework with a WACC of 7.0% and normalized earnings of $1.4B, Targa Resources Corp. has a fair value of $13.92 per share. The EPV range is $0.00 – $39.72 based on WACC sensitivity (5.5% – 8.5%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,428 | 1,428 | 1,428 |
| (/) WACC | 8.5% | 7.0% | 5.5% |
| Enterprise Value | 16,781 | 20,373 | 25,920 |
| (-) Net debt | 17,380 | 17,380 | 17,380 |
| Equity Value | -599 | 2,993 | 8,540 |
| (/) Outstanding shares | 215 | 215 | 215 |
| Fair Price | $0.00 | $13.92 | $39.72 |
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.