Assessing Entergy’s Value After a 36.7% Stock Surge and Grid Investment News

• Curious if Entergy stock is a deal or a dud right now? You are not alone, and a closer look at its valuation could reveal some surprises for both cautious and adventurous investors.
• Shares are currently trading at $96.09, having returned 27.4% year-to-date and an impressive 36.7% over the past year. Recent fluctuations have made short-term moves a bit bumpy, but the stock's longer-term performance has attracted attention.
• Recent headlines have spotlighted Entergy’s continued investments in grid modernization and clean energy. Many see these efforts as drivers behind its strong price momentum. Industry analysts have highlighted power sector tailwinds, and Entergy’s ambitious infrastructure projects have kept investors focused on its future growth trajectory.
• On the valuation front, Entergy scores just 1 out of 6 according to our checklist. This suggests that while some boxes are ticked, there is room for a deeper look. Let’s break down the classic valuation methods next, and stay tuned for a sharper angle on what really matters for value investors.

Entergy scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Entergy Dividend Discount Model (DDM) Analysis

The Dividend Discount Model (DDM) estimates a stock's intrinsic value by forecasting the company’s future dividend payments and then discounting them back to today’s dollars. This approach is especially suitable for utilities like Entergy, given their consistent dividend histories and predictable cash flows.

Entergy currently pays an annual dividend per share of $2.67, with a payout ratio of about 61.3%. This payout is supported by a return on equity of 11.16%, indicating the company is using its capital fairly efficiently to fund shareholder dividends. Growth is modest, with the dividend expected to increase at a capped rate of 3.08%. This is a conservative projection set below the recent 4.32% growth rate to account for realistic expectations in the utility sector.

Based on these sustainable dividend and growth assumptions, the DDM calculates Entergy’s intrinsic value at $72.33 per share. When compared to the current market price of $96.09, the analysis suggests that the stock is trading at a 32.8% premium relative to its estimated fair value.

Result: OVERVALUED

Our Dividend Discount Model (DDM) analysis suggests Entergy may be overvalued by 32.8%. Discover 832 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Entergy.

Approach 2: Entergy Price vs Earnings (PE) Analysis

For established, consistently profitable companies such as Entergy, the Price-to-Earnings (PE) ratio is a widely accepted yardstick for valuation. It gives investors a quick snapshot of how much they are paying for each dollar of the company’s earnings, which is crucial for sectors like electric utilities that tend to deliver steady profits.

What counts as a "normal" or "fair" PE ratio can vary, as higher growth prospects and lower risks often justify paying a higher multiple. In contrast, slow growth or elevated risks might require a lower PE. That makes context essential when interpreting these multiples.

At present, Entergy trades at a PE ratio of 23.7x. This is above the electric utilities industry average of 21.2x, yet well below its peer group’s average of 32.3x. To offer a sharper perspective, Simply Wall St’s “Fair Ratio” metric calculates the ideal PE for Entergy by factoring in not just growth and risk, but also profit margin, industry norms, and overall market cap. For Entergy, this Fair Ratio is 23.7x.

Unlike simple comparisons to industry or peers, the Fair Ratio provides a more tailored benchmark by reflecting the company’s specific fundamentals and outlook. In Entergy’s case, its current PE and Fair Ratio are virtually identical, suggesting the stock is very reasonably valued based on its earnings potential.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Entergy Narrative

Earlier, we mentioned there is an even better way to understand valuation. Let's introduce you to Narratives, a simple, intuitive approach that goes beyond ratios by connecting your own perspective on a company to its future financial forecast and fair value.

A Narrative is your story behind the numbers, expressing what you believe about Entergy’s future revenue, earnings, and profit margins, and linking those assumptions to an estimated fair value for the company. This approach helps turn financial analysis from something abstract and formulaic into a personalized tool for decision making, contextualizing valuation within the company’s actual business developments and industry trends.

Narratives on Simply Wall St are designed for ease. You can access and contribute to them right from the Community page, just as millions of other investors do. These Narratives update automatically when new information or fresh earnings reports are released, keeping your outlook current and relevant without any extra effort.

This lets you easily compare your fair value estimate with Entergy’s share price, helping you decide if now is the right time to buy or sell based on your view of its prospects. For example, some investors believe Entergy’s unique region and renewables push will drive its fair value as high as $109 per share, while others, wary of capital needs and regulatory risk, set it as low as $67. Either way, Narratives make your investing smarter and uniquely yours.

Do you think there's more to the story for Entergy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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