FirstEnergy’s Valuation before Its Q4 Earnings




FirstEnergy (FE) stock seems to have a lower valuation than its historical average and peers’ average. FirstEnergy’s forward PE multiple, based on analysts’ 2019 EPS estimate, is close to 15x. The company’s five-year historical average is ~17x, while peers’ average is ~18x. FirstEnergy’s improved business mix due to the separation of its competitive segment last year will likely bode well for its earnings growth in the long term.

FE stk

However, FirstEnergy’s earnings are expected to rise ~2% in 2019 compared to 2018, which is lower than many of its peers. As a result, FirstEnergy’s valuation doesn’t seem justified if we compare its earnings growth to the broader market. Generally, utilities grow very slowly compared to the broader market. FirstEnergy’s superior dividend yield likely makes it attractive among its peers.

Peers’ valuation

At a forward PE ratio of 20.2x, Xcel Energy stock is trading above its five-year historical average. Xcel Energy appears to be trading at a premium valuation. Consolidated Edison’s (ED) forward PE ratio is 18.3x, which is above its historical average.

FirstEnergy stock offers a dividend yield of 3.9%, which is higher than the Utilities Select Sector SPDR ETF’s (XLU) yield of 3.3%. Xcel Energy’s (XEL) yield is 2.8%, while Consolidated Edison’s (ED) yield is 3.8%.

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