Entergy Corp (ETR, Financial) has gained 2.92% recently, despite a 7.46% loss over the past three months. With an Earnings Per Share (EPS) (EPS) of 6.56, the question arises: Is the stock modestly undervalued? This comprehensive analysis aims to answer this question by delving into Entergy's financials, business performance, and intrinsic value.
Company Overview
Entergy is a holding company with five regulated integrated utilities that generate and distribute electricity to about 3 million customers in Arkansas, Louisiana, Mississippi, and Texas. With approximately 23 gigawatts of rate-regulated utility-owned power generation capacity, Entergy is one of the largest power producers in the country. The company's stock price is currently $94.05, while the GF Value, an estimation of fair value, stands at $117.37. This comparison suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock's price significantly surpasses the GF Value Line, it is deemed overvalued, and its future return is likely to be poor. Conversely, if it falls significantly below the GF Value Line, its future return is expected to be higher.
Entergy (ETR, Financial) appears to be modestly undervalued according to the GuruFocus Value calculation. With a market cap of $19.90 billion, the stock's long-term return is likely to exceed its business growth due to its relative undervaluation.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Entergy's cash-to-debt ratio of 0.04, ranking lower than 83.13% of 486 companies in the Utilities - Regulated industry, suggests a poor balance sheet.
Profitability and Growth
Consistent profitability reduces investment risk. Entergy has been profitable in 8 out of the past 10 years. With a revenue of $13.30 billion and an operating margin of 19.68%, Entergy's profitability ranks better than 70.5% of 505 companies in the Utilities - Regulated industry.
Growth is a critical factor in a company's valuation. Entergy's 3-year average annual revenue growth of 6.6% ranks worse than 54.53% of 486 companies in the Utilities - Regulated industry. Its 3-year average EBITDA growth rate is 0.4%, ranking worse than 65.22% of 460 companies in the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to Weighted Average Cost of Capital (WACC) is another way to evaluate a company's profitability. Entergy's ROIC of 3.7 is lower than its WACC of 5.41, suggesting that the company is not creating value for shareholders.
Conclusion
In conclusion, Entergy (ETR, Financial) appears to be modestly undervalued. Despite its poor financial condition, the company has fair profitability. However, its growth ranks worse than 65.22% of 460 companies in the Utilities - Regulated industry. For more information on Entergy stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
