Using the Earnings Power Value framework with a WACC of 9.3% and normalized earnings of $564.6M, Western Digital Corporation has a fair value of $8.74 per share. The EPV range is $6.36 – $12.03 based on WACC sensitivity (7.8% – 10.8%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 565 | 565 | 565 |
| (/) WACC | 10.8% | 9.3% | 7.8% |
| Enterprise Value | 5,251 | 6,103 | 7,284 |
| (-) Net debt | 2,967 | 2,967 | 2,967 |
| Equity Value | 2,284 | 3,136 | 4,317 |
| (/) Outstanding shares | 359 | 359 | 359 |
| Fair Price | $6.36 | $8.74 | $12.03 |
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.