FirstEnergy Corp (FE, Financial) saw a 1.03% gain in its stock price recently, despite a 3-month loss of 14.96%. The company's Earnings Per Share (EPS) stands at 0.79. With these figures in mind, is FirstEnergy truly modestly undervalued? This article aims to answer that question by delving into an in-depth analysis of the company's valuation. So, let's get started.
Introduction to FirstEnergy Corp
FirstEnergy is an investor-owned holding company that operates 10 regulated distribution utilities across six mid-Atlantic and Midwestern states. The company also owns and operates one of the nation's largest electric transmission systems. With a market cap of $18.90 billion and sales amounting to $12.90 billion, FirstEnergy's current stock price is $32.94. However, according to the GF Value, the fair value of the stock stands at $42.57. This discrepancy paves the way for a deeper exploration of the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, it indicates overvaluation and potentially poor future returns. Conversely, if it's significantly below the GF Value Line, the stock may be undervalued and likely to offer higher future returns.
As per our valuation method, FirstEnergy (FE, Financial) appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Assessing FirstEnergy's Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss to investors. FirstEnergy's cash-to-debt ratio of 0.01 is lower than 95.42% of 480 companies in the Utilities - Regulated industry. This indicates that FirstEnergy's financial strength is relatively poor.
Profitability and Growth of FirstEnergy
Companies that consistently generate profits over the long term typically offer less risk to investors. FirstEnergy has been profitable 8 out of the past 10 years, with an operating margin of 16.04%, ranking better than 60.48% of 501 companies in the Utilities - Regulated industry. However, the 3-year average annual revenue growth of FirstEnergy is 2.3%, which ranks lower than 76.09% of 481 companies in the same industry.
ROIC vs WACC
Comparing the return on invested capital (ROIC) with the weighted average cost of capital (WACC) can provide insights into a company's profitability. For the past 12 months, FirstEnergy's ROIC is 1.55, and its WACC is 5.01.
Conclusion
Given the analysis, it appears that FirstEnergy (FE, Financial) is modestly undervalued. However, its financial condition is poor, and its profitability is fair. Its growth also ranks lower than 57.58% of 455 companies in the Utilities - Regulated industry. For a more detailed financial overview of FirstEnergy, check out its 30-Year Financials here.
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