WEC Energy Group Inc (WEC, Financial) experienced a daily loss of -4.49%, with a 3-month loss of -11.74%. Despite these figures, the company has an Earnings Per Share (EPS) of 4.29. This analysis seeks to answer the question: is WEC Energy Group modestly undervalued? We invite you to read on for an in-depth valuation analysis of WEC Energy Group.
Company Introduction
WEC Energy Group Inc serves electric and gas customers in Illinois, Michigan, Minnesota, and Wisconsin. The company's asset mix is approximately 49% electric generation and distribution, 36% gas distribution, 10% electric transmission, and 5% unregulated renewable generation. The company's stock price is currently $76.93, while its estimated fair value (GF Value) is $107.78. This discrepancy suggests that WEC Energy Group may be modestly undervalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
WEC Energy Group (WEC, Financial) stock appears to be modestly undervalued based on the GuruFocus Value calculation. At its current price of $76.93 per share, WEC Energy Group has a market cap of $24.30 billion and the stock shows every sign of being modestly undervalued. As WEC Energy Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of WEC Energy Group
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. WEC Energy Group has a cash-to-debt ratio of 0, which is worse than 0% of 480 companies in the Utilities - Regulated industry. GuruFocus ranks the overall financial strength of WEC Energy Group at 3 out of 10, which indicates that the financial strength of WEC Energy Group is poor.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. WEC Energy Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.30 billion and Earnings Per Share (EPS) of $4.29. Its operating margin is 20.25%, which ranks better than 71.26% of 501 companies in the Utilities - Regulated industry. Overall, the profitability of WEC Energy Group is ranked 8 out of 10, which indicates strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. WEC Energy Group's 3-year average revenue growth rate is better than 53.01% of 481 companies in the Utilities - Regulated industry. WEC Energy Group's 3-year average EBITDA growth rate is 7.9%, which ranks better than 62.64% of 455 companies in the Utilities - Regulated industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, WEC Energy Group's ROIC is 3.78 while its WACC came in at 5.71.
Conclusion
Overall, WEC Energy Group (WEC, Financial) stock shows every sign of being modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 62.64% of 455 companies in the Utilities - Regulated industry. To learn more about WEC Energy Group stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
