FirstEnergy Corp (FE, Financial) has seen a daily loss of 1.03% and a 3-month loss of 6.06%. Despite these figures, the company's Earnings Per Share (EPS) stands at 0.79, prompting us to question: is FirstEnergy's stock modestly undervalued? This article delves into FirstEnergy's valuation analysis, providing you with insights to make informed investment decisions.
Company Introduction
FirstEnergy is an investor-owned holding company with 10 regulated distribution utilities across six Mid-Atlantic and Midwestern states. It also owns and operates one of the nation's largest electric transmission systems. With a current share price of $36.42 and a GF Value of $42.49, FirstEnergy appears to be modestly undervalued. The company has a market cap of $20.90 billion, hinting at a potential investment opportunity.
Understanding GF Value
The GF Value is a proprietary measure that evaluates a stock's fair trading value. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. 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.
FirstEnergy's stock appears to be modestly undervalued according to the GF Value. This suggests that the long-term return of its stock is likely to be higher than its business growth. The GF Value chart below provides a visual representation of this analysis.
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Financial Strength
Assessing the financial strength of a company is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. FirstEnergy's cash-to-debt ratio is 0.01, which is worse than 95.24% of 483 companies in the Utilities - Regulated industry. This puts FirstEnergy's overall financial strength at 3 out of 10, indicating that it is relatively weak.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. FirstEnergy has been profitable 8 out of the past 10 years, with an operating margin of 16.04%, which ranks better than 60.48% of 501 companies in the Utilities - Regulated industry. This gives FirstEnergy a profitability rank of 6 out of 10.
However, the company's growth is less impressive. It has an average annual revenue growth of 2.3%, which ranks worse than 76.03% of 484 companies in the Utilities - Regulated industry. Its 3-year average EBITDA growth is 2.7%, which ranks worse than 57.11% of 457 companies in the same industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. For the past 12 months, FirstEnergy's ROIC is 1.55, and its WACC is 5.02, indicating that the company's return on invested capital is lower than its cost of capital.
Conclusion
In conclusion, FirstEnergy's stock appears to be modestly undervalued. However, its financial condition is poor, and its profitability is only fair. Its growth ranks worse than 57.11% of 457 companies in the Utilities - Regulated industry. For more information about FirstEnergy's stock, check out its 30-Year Financials here.
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