Long-established in the Utilities - Regulated industry, FirstEnergy Corp (FE, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 1.37%, juxtaposed with a three-month change of -14.51%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of FirstEnergy Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 6/10
- Growth rank: 3/10
- GF Value rank: 7/10
- Momentum rank: 4/10
Based on the above method, GuruFocus assigned FirstEnergy Corp the GF Score of 67 out of 100, which signals poor future outperformance potential.
FirstEnergy Corp Business Overview
FirstEnergy Corp, with a market cap of $18.95 billion, operates as an investor-owned holding company with 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 sales of $12.89 billion and an operating margin of 16.04%, FirstEnergy Corp has established a significant presence in its industry.
Financial Strength Analysis
FirstEnergy Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 2.18 positions it worse than 76.05% of 430 companies in the Utilities - Regulated industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just 0.7, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.01 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.28, which is worse than 89.38% of 452 companies in the Utilities - Regulated industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 6.22, which is above Joel Tillinghast's warning level of 4 and is worse than 73.8% of 439 companies in the Utilities - Regulated industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where FirstEnergy Corp seems to falter, as evidenced by the company's low Growth rank. Lastly, FirstEnergy Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While FirstEnergy Corp has a strong market presence, its financial health and growth prospects raise concerns about its ability to outperform in the future. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
