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A Pre-Earnings Analysis of FirstEnergy and Its Growth Prospects

PART:
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Part 4
A Pre-Earnings Analysis of FirstEnergy and Its Growth Prospects PART 4 OF 7

FE, EXC, and PEG: Looking at Their Current Valuations

FE: Market performance

So far this year, FirstEnergy (FE) stock has fallen nearly 1%, while the Utilities Select Sector SPDR ETF (XLU) has risen 6% during the same period. The SPDR S&P 500 ETF (SPY) (SPX-INDEX) has risen 5% during the same period. FirstEnergy makes up more than 2.1% of XLU, and the utility sector makes up nearly 3.2% of SPY.

The chart below compares the performances of FirstEnergy and its peers along with the broader markets.

FE, EXC, and PEG: Looking at Their Current Valuations

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FirstEnergy: Valuation

FirstEnergy currently appears to be trading at a fair valuation compared to its peers. It’s now trading at an EV-to-EBITDA1 ratio of 7.8x, while the industry average is near 10x. FirstEnergy’s five-year historical EV-to-EBITDA ratio is also near 10x.

The EV-to-EBITDA ratio indicates whether the stock is undervalued or overvalued, regardless of its capital structure. Enterprise value is the combination of a company’s debt and equity minus its cash holdings.

Currently, Exelon (EXC) is trading at an EV-to-EBITDA valuation multiple near 8x. Public Service Enterprise Group (PEG) stands at 10x. These competitive utilities appear to be trading at fair valuations compared to the sector average.

Please read How Are Competitive Utilities Placed Heading into 2017? to compare these utilities (XLU).

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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