FirstEnergy Stock May Be Cheap but Not Worth the Risk
Let’s have a look at FirstEnergy’s valuation. FirstEnergy (FE) is currently trading at an EV-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 7.5x, while the industry average is just above 10x. FirstEnergy’s five-year historical EV-to-EBITDA ratio is ~10x. Therefore, it appears to be trading at a fair valuation compared with the industry average and its historical average.
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Exelon (EXC) is currently trading at an EV-to-EBITDA ratio of ~7.8x. Public Service Enterprise Group (PEG) stands at 10x. These competitive utilities appear to be trading at a fair valuation compared with the sector average.
FirstEnergy’s volatile stock movement may be one of the main reasons behind its discounted valuation. Its increased focus on regulated operations may bring earnings stability in the future, which may stabilize its stock.
Importantly, FirstEnergy is among the most volatile stocks in S&P 500 Utilities (XLU). The potential upside offered by FE could be a risky proposition for conservative investors.
Although FirstEnergy’s current dividend yield of 4.6% is one of the highest in the industry, its dividend profile is less stable. FE has not raised its dividends since 2011.