Using the Earnings Power Value framework with a WACC of 7.9% and normalized earnings of $2.0B, T. Rowe Price Group, Inc. has a fair value of $126.55 per share. The EPV range is $108.20 – $153.46 based on WACC sensitivity (6.4% – 9.4%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,045 | 2,045 | 2,045 |
| (/) WACC | 9.4% | 7.9% | 6.4% |
| Enterprise Value | 21,694 | 25,799 | 31,821 |
| (-) Net debt | -2,518 | -2,518 | -2,518 |
| Equity Value | 24,212 | 28,317 | 34,339 |
| (/) Outstanding shares | 224 | 224 | 224 |
| Fair Price | $108.20 | $126.55 | $153.46 |
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.