Evergy Inc (EVRG, Financial) has recently experienced a daily loss of 2.75% and a significant 3-month decline of 16.65%. Despite these fluctuations, the company maintains an Earnings Per Share (EPS) of $2.96. With such figures in mind, investors are prompted to question whether Evergy (EVRG) is modestly undervalued. In the following analysis, we delve into the company's valuation to determine its true market position.
Company Introduction
Evergy Inc (EVRG, Financial), a regulated electric utility, serves the regions of eastern Kansas and western Missouri. With subsidiaries like Evergy Metro, Evergy Kansas Central, Evergy Missouri West, and Evergy Transmission Co., it boasts a combined rate base of approximately $19 billion. Notably, Evergy stands as one of the largest wind energy suppliers in the U.S. When comparing the current stock price of $48.05 to the GF Value of $62.27, an estimation of fair value, we set the stage for a comprehensive evaluation of Evergy's intrinsic worth.
Summarize GF Value
The GF Value is a unique measure determining the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. According to this valuation method, Evergy (EVRG, Financial) appears to be modestly undervalued. The GF Value Line suggests that if a stock's price significantly surpasses the GF Value, it may be overvalued, predicting poor future returns. Conversely, if the price lingers well below the GF Value, the stock could be undervalued, potentially leading to higher future returns. At its current price of $48.05, Evergy (EVRG) demonstrates signs of being modestly undervalued, indicating that its long-term stock return could surpass its business growth.
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Financial Strength
Investors must evaluate a company's financial strength to mitigate the risk of permanent capital loss. Metrics such as the cash-to-debt ratio and interest coverage offer insights into a company's financial robustness. Evergy's cash-to-debt ratio stands at 0, placing it lower than 0% of its industry peers. With a financial strength rating of 3 out of 10, Evergy's financial condition raises concerns.
Profitability and Growth
Investing in profitable companies, especially those consistently profitable over time, tends to be less risky. Evergy has achieved profitability for the past decade, with a revenue of $5.60 billion and an Earnings Per Share (EPS) of $2.96 over the last twelve months. Its operating margin of 21.98% ranks well within its industry, reflecting strong profitability. However, Evergy's average annual revenue growth of 5.8% and 3-year average EBITDA growth rate of 3.5% are less impressive when compared to industry counterparts.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) offers another perspective on profitability. ROIC indicates how effectively a company generates cash flow relative to its invested capital, while WACC represents the average rate a company pays its security holders. When ROIC exceeds WACC, it suggests value creation for shareholders. Evergy's ROIC of 3.98 is currently below its WACC of 6.25, implying challenges in generating shareholder value.
Conclusion
In conclusion, Evergy (EVRG, Financial) exhibits signs of being modestly undervalued. Despite its strong profitability, the company's financial condition is worrisome, and its growth lags behind more than half of its industry peers. For a deeper understanding of Evergy's financial health, one can examine its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
