The stock of Eversource Energy (NYSE:ES, 30-year Financials) shows every sign of being modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $83.59 per share and the market cap of $28.7 billion, Eversource Energy stock appears to be modestly overvalued. GF Value for Eversource Energy is shown in the chart below.
Because Eversource Energy is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 2.4% over the past three years and is estimated to grow 4.07% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Eversource Energy has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. The overall financial strength of Eversource Energy is 3 out of 10, which indicates that the financial strength of Eversource Energy is poor. This is the debt and cash of Eversource Energy over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Eversource Energy has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $8.9 billion and earnings of $3.56 a share. Its operating margin is 22.33%, which ranks better than 72% of the companies in the industry of Utilities - Regulated. Overall, the profitability of Eversource Energy is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Eversource Energy over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Eversource Energy's 3-year average revenue growth rate is in the middle range of the companies in the industry of Utilities - Regulated. Eversource Energy's 3-year average EBITDA growth rate is 2.1%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Eversource Energy's return on invested capital is 3.62, and its cost of capital is 2.99. The historical ROIC vs WACC comparison of Eversource Energy is shown below:
In conclusion, the stock of Eversource Energy (NYSE:ES, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Utilities - Regulated. To learn more about Eversource Energy stock, you can check out its 30-year Financials here.
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