Unmasking the Value Trap: A Deep Dive into Eversource Energy (ES)

Is Eversource Energy's current undervaluation a golden opportunity or a potential value trap? Let's find out.

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Value-focused investors are constantly scouting for stocks that are priced below their intrinsic value. One such stock that has caught the attention of many is Eversource Energy (ES, Financial). The stock, currently trading at $65.27, recorded a daily gain of 2.03% and a 3-month decrease of 8.44%. According to its GF Value, the fair valuation of the stock stands at $110.27.

Understanding the GF Value

The GF Value is a unique method that calculates the current intrinsic value of a stock. The GF Value Line offers an overview of the fair value at which the stock should ideally be trading. It is derived based on three key factors:

  • Historical multiples such as the PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow at which the stock has traded.
  • An adjustment factor by GuruFocus based on the company's past returns and growth.
  • Future estimates of the business performance.

If the stock price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, which can influence future returns.


However, before jumping to conclusions, it's essential to consider a more detailed analysis of Eversource Energy. Despite its seemingly attractive valuation, certain risk factors cannot be ignored. These risks are primarily reflected through its low Altman Z-score of 0.82. These indicators suggest that Eversource Energy, despite its apparent undervaluation, might be a potential value trap, emphasizing the need for thorough due diligence in investment decision-making.

Dissecting the Altman Z-Score

Before delving into the details, it's crucial to understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year timeframe. It combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.

Company Snapshot: Eversource Energy

Eversource Energy is a diversified holding company with subsidiaries that provide rate-regulated electric, gas, and water distribution service to more than 4 million customers in the Northeast U.S. The company has expanded its service territories with acquisitions of NStar (2012), Aquarion (2017), and Columbia Gas (2020). Eversource Energy is exiting its 50% partnership with European utility Orsted to develop 2 gigawatts of offshore wind projects by 2025.


Decoding Eversource Energy's Low Altman Z-Score

A closer look at Eversource Energy's Altman Z-score suggests potential financial distress, indicating that the company's financial health may be weak.

Conclusion: Is Eversource Energy a Value Trap?

While Eversource Energy's current undervaluation might seem attractive, the low Altman Z-Score signals potential financial distress, suggesting that the company could be a value trap. Therefore, investors should tread cautiously and conduct thorough due diligence before making an investment decision.

GuruFocus Premium members can find stocks with high Altman Z-Score using the Walter Schloss Screen .


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure