Using the Earnings Power Value framework with a WACC of 7.2% and normalized earnings of $2.6B, Zoetis Inc. has a fair value of $66.57 per share. The EPV range is $52.26 – $88.46 based on WACC sensitivity (5.7% – 8.7%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 2,634 | 2,634 | 2,634 |
| (/) WACC | 8.7% | 7.2% | 5.7% |
| Enterprise Value | 30,375 | 36,728 | 46,441 |
| (-) Net debt | 7,181 | 7,181 | 7,181 |
| Equity Value | 23,194 | 29,547 | 39,260 |
| (/) Outstanding shares | 444 | 444 | 444 |
| Fair Price | $52.26 | $66.57 | $88.46 |
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.