Long-established in the Utilities - Regulated industry, Entergy Corp (ETR, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0.28%, juxtaposed with a three-month change of 8.4%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Entergy Corp.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 6/10
- Growth rank: 6/10
- GF Value rank: 1/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned Entergy Corp the GF Score of 66 out of 100, which signals poor future outperformance potential.
Understanding Entergy Corp's Business
Entergy Corp is a holding company with five regulated integrated utilities that generate and distribute electricity to about 3 million customers in Arkansas, Louisiana, Mississippi, and Texas. It is one of the largest power producers in the country with 24 gigawatts of rate-regulated owned and leased power generation capacity. Entergy was the second-largest nuclear owner in the US before it began retiring and selling its plants in the Northeast in 2014. It plans to sell its two small gas utilities in Louisiana. The company has a market cap of $38.67 billion, with sales amounting to $11.93 billion and an operating margin of 25.89%.
Financial Strength Breakdown
Entergy Corp's financial strength indicators present some concerning insights about the company's balance sheet health. Entergy Corp has an interest coverage ratio of 2.55, which positions it worse than 66.59% of 434 companies in the Utilities - Regulated industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.01, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.05 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.04, which is worse than 85.87% of 467 companies in the Utilities - Regulated industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 5.64, which is above Joel Tillinghast's warning level of 4 and is worse than 68.46% of 447 companies in the Utilities - Regulated industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Conclusion
Entergy Corp's financial strength, profitability, and growth metrics, as highlighted by the GF Score, indicate potential underperformance. The company's high debt levels and low financial strength scores suggest challenges in maintaining its historical performance. Investors should consider these factors when evaluating Entergy Corp's future prospects. For those seeking companies with strong GF Scores, GuruFocus Premium members can find more options using the following screener link: GF Score Screen.
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.
