Using the Earnings Power Value framework with a WACC of 7.5% and normalized earnings of $1.1B, Tractor Supply Company has a fair value of $16.10 per share. The EPV range is $11.62 – $22.82 based on WACC sensitivity (6.0% – 9.0%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,074 | 1,074 | 1,074 |
| (/) WACC | 9.0% | 7.5% | 6.0% |
| Enterprise Value | 11,930 | 14,315 | 17,893 |
| (-) Net debt | 5,749 | 5,749 | 5,749 |
| Equity Value | 6,182 | 8,567 | 12,144 |
| (/) Outstanding shares | 532 | 532 | 532 |
| Fair Price | $11.62 | $16.10 | $22.82 |
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.