The stock of Public Service Enterprise Group (NYSE:PEG, 30-year Financials) gives every indication of being fairly valued, 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 $59.34 per share and the market cap of $30 billion, Public Service Enterprise Group stock gives every indication of being fairly valued. GF Value for Public Service Enterprise Group is shown in the chart below.
Because Public Service Enterprise Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.8% over the past three years and is estimated to grow 0.35% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Public Service Enterprise Group has a cash-to-debt ratio of 0.05, which which ranks worse than 84% of the companies in the industry of Utilities - Regulated. The overall financial strength of Public Service Enterprise Group is 4 out of 10, which indicates that the financial strength of Public Service Enterprise Group is poor. This is the debt and cash of Public Service Enterprise Group over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Public Service Enterprise Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.7 billion and earnings of $4.16 a share. Its operating margin is 20.99%, which ranks better than 67% of the companies in the industry of Utilities - Regulated. Overall, the profitability of Public Service Enterprise Group is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Public Service Enterprise Group 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. Public Service Enterprise Group’s 3-year average revenue growth rate is in the middle range of the companies in the industry of Utilities - Regulated. Public Service Enterprise Group’s 3-year average EBITDA growth rate is 4.4%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Public Service Enterprise Group’s ROIC is 3.37 while its WACC came in at 4.08. The historical ROIC vs WACC comparison of Public Service Enterprise Group is shown below:
In closing, Public Service Enterprise Group (NYSE:PEG, 30-year Financials) stock shows every sign of being fairly valued. 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 Public Service Enterprise Group stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
