On November 8, 2017, FirstEnergy (FE) stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 8.5x. Its five-year historical valuation average is close to 9.0x. On average, utilities are trading at a valuation multiple of 11x. As a result, FirstEnergy stock looks to be trading at a notable discount to its historical average and to its peers’ average.
Exelon (EXC), the largest competitive utility in the country, is currently trading at 8.0x. Its five-year valuation average is ~8.0x. Exelon stock appears to be trading at a fair valuation compared to its historical average and at a striking discount compared to the industry average (XLU).
Duke Energy (DUK) is trading at a valuation multiple of 12.2x, while renewables titan NextEra Energy (NEE) is trading at valuation 13x. Both appear to be trading at a noteworthy premium to their historical averages.
Competitive utilities appear to be trading at a modest discount compared to broader utilities’ average. However, investors seem concerned about associated risks due to less stable earnings and volatile stock price movements.
FirstEnergy reported better-than-expected earnings in 3Q17. Its per-share earnings grew 8% year-over-year. FirstEnergy’s management also raised its fiscal 2017 earnings guidance from $2.70–$3.00 per share to $3.00–$3.10 per share. FirstEnergy’s earnings were impacted positively by an increased contribution from its regulated operations during the quarter.