Using the Earnings Power Value framework with a WACC of 7.3% and normalized earnings of $1.5B, Ventas, Inc. has a fair value of $16.25 per share. The EPV range is $8.88 – $27.42 based on WACC sensitivity (5.8% – 8.8%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,460 | 1,460 | 1,460 |
| (/) WACC | 8.8% | 7.3% | 5.8% |
| Enterprise Value | 16,589 | 19,996 | 25,163 |
| (-) Net debt | 12,479 | 12,479 | 12,479 |
| Equity Value | 4,110 | 7,517 | 12,685 |
| (/) Outstanding shares | 463 | 463 | 463 |
| Fair Price | $8.88 | $16.25 | $27.42 |
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.