On August 23, 2023, Xcel Energy Inc (XEL, Financial) closed at $57.17, marking a -1.35% change for the day. Over the past three months, the stock has lost -12.34%, despite an Earnings Per Share (EPS) (EPS) of 3.15. The question that arises is whether Xcel Energy (XEL) is modestly undervalued. Read on for a detailed valuation analysis of Xcel Energy.
Company Introduction
Xcel Energy manages utilities serving 3.7 million electric customers and 2.1 million natural gas customers across eight states. It ranks among the largest renewable energy providers in the U.S., with half of its electricity sales coming from carbon-free energy. The company's utilities include Northern States Power, Public Service Company of Colorado, and Southwestern Public Service Company, serving multiple states. As of the last trading session, Xcel Energy (XEL, Financial) had a market cap of $31.50 billion, with sales figures reaching $15.20 billion.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, Xcel Energy (XEL, Financial) appears to be modestly undervalued. The stock's fair value is estimated at $77.36, considering historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. As Xcel Energy's current price is below the GF Value Line, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. Xcel Energy's cash-to-debt ratio of 0.01, which ranks worse than 94.95% of 475 companies in the Utilities - Regulated industry, indicates that its financial strength is poor. This is further illustrated by the company's debt and cash over the past years.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, carries less risk. Xcel Energy has been profitable for ten out of the past ten years, with an operating margin of 16.01% better than 59.76% of 502 companies in the Utilities - Regulated industry. As such, Xcel Energy's profitability is strong.
Long-term stock performance is closely correlated with growth, according to GuruFocus research. Xcel Energy's average annual revenue growth of 8.1% ranks better than 50.82% of 486 companies in the Utilities - Regulated industry. The 3-year average EBITDA growth is 5.5%, which ranks better than 55.75% of 461 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) offers another perspective on its profitability. Xcel Energy's ROIC of 4.55 over the past 12 months is lower than its WACC of 5.39, indicating a need for improvement.
Conclusion
In conclusion, Xcel Energy (XEL, Financial) stock appears to be modestly undervalued. Despite its poor financial condition, the company demonstrates strong profitability and growth, ranking better than 55.75% of 461 companies in the Utilities - Regulated industry. For more information about Xcel Energy stock, you can check out its 30-Year Financials here.
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