Using the Earnings Power Value framework with a WACC of 7.8% and normalized earnings of $6.6B, United Parcel Service, Inc. has a fair value of $69.67 per share. The EPV range is $53.34 – $93.84 based on WACC sensitivity (6.3% – 9.3%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 6,638 | 6,638 | 6,638 |
| (/) WACC | 9.3% | 7.8% | 6.3% |
| Enterprise Value | 71,745 | 85,626 | 106,169 |
| (-) Net debt | 26,403 | 26,403 | 26,403 |
| Equity Value | 45,342 | 59,223 | 79,766 |
| (/) Outstanding shares | 850 | 850 | 850 |
| Fair Price | $53.34 | $69.67 | $93.84 |
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.