Using the Earnings Power Value framework with a WACC of 7.7% and normalized earnings of $433.3M, West Pharmaceutical Services, Inc. has a fair value of $82.63 per share. The EPV range is $69.99 – $101.40 based on WACC sensitivity (6.2% – 9.2%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 433 | 433 | 433 |
| (/) WACC | 9.2% | 7.7% | 6.2% |
| Enterprise Value | 4,713 | 5,633 | 6,997 |
| (-) Net debt | -375 | -375 | -375 |
| Equity Value | 5,088 | 6,007 | 7,372 |
| (/) Outstanding shares | 73 | 73 | 73 |
| Fair Price | $69.99 | $82.63 | $101.40 |
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.