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FirstEnergy Corp Valuation – March 2018 $FE

Company Profile (excerpt from Reuters): FirstEnergy Corp., incorporated on September 17, 1996, is a holding company. The Company is engaged in holding, directly or indirectly, all of the outstanding equity of its principal subsidiaries, which include Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI), The Toledo Edison Company (TE), Pennsylvania Power Company (Penn), Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (ME), Pennsylvania Electric Company (PN), FirstEnergy Service Company (FESC), FirstEnergy Solutions Corp. (FES) and its principal subsidiaries (FirstEnergy Generation, LLC (FG) and FirstEnergy Nuclear Generation, LLC (NG)), Allegheny Energy Supply Company, LLC (AE Supply), Monongahela Power Company (MP), The Potomac Edison Company (PE), West Penn Power Company (WP), FirstEnergy Transmission, LLC (FET) and its principal subsidiaries (American Transmission Systems, Incorporated (ATSI) and Trans-Allegheny Interstate Line Company (TrAIL)), and Allegheny Energy Service Corporation (AESC). The Company’s segments include Regulated Distribution, Regulated Transmission, Competitive Energy Services (CES) and Corporate/Other.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FE – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,384,070,385 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.76 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -304.80% Fail
6. Moderate PEmg Ratio PEmg < 20 -11.54 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.90 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.76 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$2.99
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth -$43.30
MG Value based on 0% Growth -$25.38
Market Implied Growth Rate -10.02%
Current Price $34.45
% of Intrinsic Value N/A

FirstEnergy Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.31 in 2014 to an estimated $-2.99 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into FirstEnergy Corp. revealed the company was trading above its Graham Number of $20.65. The company pays a dividend of $1.44 per share, for a yield of 4.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -11.54, which was below the industry average of 24.93, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-79.33.

FirstEnergy Corp. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$79.33
Graham Number $20.65
PEmg -11.54
Current Ratio 0.76
PB Ratio 3.90
Current Dividend $1.44
Dividend Yield 4.18%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $3,108,000,000
Total Current Liabilities $4,077,000,000
Long-Term Debt $0
Total Assets $42,257,000,000
Intangible Assets $5,618,000,000
Total Liabilities $38,332,000,000
Shares Outstanding (Diluted Average) 444,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.15
Dec2017 -$3.88
Dec2016 -$14.49
Dec2015 $1.37
Dec2014 $0.71
Dec2013 $0.94
Dec2012 $1.84
Dec2011 $2.21
Dec2010 $2.42
Dec2009 $3.29
Dec2008 $4.38
Dec2007 $4.22
Dec2006 $3.81
Dec2005 $2.61
Dec2004 $2.67
Dec2003 $1.39
Dec2002 $1.88
Dec2001 $2.81
Dec2000 $2.69
Dec1999 $2.50
Dec1998 $1.82

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$2.99
Dec2017 -$4.73
Dec2016 -$4.07
Dec2015 $1.23
Dec2014 $1.31
Dec2013 $1.79
Dec2012 $2.42
Dec2011 $2.91
Dec2010 $3.38
Dec2009 $3.79
Dec2008 $3.87
Dec2007 $3.39
Dec2006 $2.81
Dec2005 $2.30
Dec2004 $2.19
Dec2003 $2.05
Dec2002 $2.37

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
FirstEnergy Corporation Annual Valuation – 2015 $FE
16 Companies in the Spotlight This Week – 4/26/14
FirstEnergy Corp (FE) Annual Valuation – 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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