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FirstEnergy’s Current Valuation Compared to Its Peers

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Valuation

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.

FE stk

Peers’ valuation

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.

3Q17 earnings

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.

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