What Should Investors Make of Entergy’s 24% Annual Surge After Strong Earnings?

If you’ve been eyeing Entergy's stock lately, you are not alone. Investors are wondering whether this electric utility’s steady climb has room to run, plateaus ahead, or perhaps even signals opportunity under the surface. Over just the past week, the stock has notched a 3.6% gain, with a robust 7.0% rise this month, and a remarkable 24.1% return so far this year. For those with a longer view, Entergy’s returns stand out even more, topping 44.9% over the last year and more than doubling over five years. These numbers have grabbed the market’s attention, reflecting both confidence in the company’s stable cash flows and shifts in the industry’s outlook.

But before you jump in or cash out, it pays to look beyond recent price moves. On the valuation front, Entergy scores a 2 out of 6 on our undervaluation scale. This suggests it still clears a couple of hurdles as potentially cheap, but not all of them. That leaves us with important questions: how do different valuation methods size up Entergy, and what can investors learn from taking a deeper dive? In the next section, we will break down these valuation approaches, and later on, I will introduce you to a perspective that goes even further in helping you understand what Entergy stock is really worth.

Entergy scores just 2/6 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, or DDM, values a company by estimating the present value of all its future dividend payments. This approach is especially popular for firms like Entergy that have a steady record of paying dividends. The model assumes dividends will continue to grow over time, capturing both the income and expected growth investors anticipate from the stock.

For Entergy, the DDM takes into account a current annual dividend of $2.64 per share, representing a payout ratio of 64.54%. The company’s return on equity stands at 10.69%, with dividends expected to grow at a capped rate of 3.08%, down from a previous estimate of 3.79%. Analysts anticipate an average long-term growth rate for dividends of around 3.79%, but the model conservatively uses the lower figure for valuation.

After running the numbers, the DDM suggests a fair value of about $71.48 for Entergy’s shares. When compared to the stock’s current trading price, this model indicates Entergy is trading at a 30.9% premium, which means the stock is currently overvalued according to this dividend-centric approach. The premium signals that investors may be expecting more dividend growth or stability than the model assumes.

Result: OVERVALUED

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

Our Dividend Discount Model (DDM) analysis suggests Entergy may be overvalued by 30.9%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Entergy Price vs Earnings (PE Ratio) Analysis

The Price-to-Earnings (PE) ratio is a trusted valuation tool for profitable companies like Entergy, as it compares the company’s current share price to its earnings per share, allowing investors to gauge how much they are paying for each dollar of profit. Since Entergy maintains steady, positive earnings, using the PE ratio provides relevant context for its valuation.

What counts as a “normal” PE ratio depends on growth outlook and risk. Companies expected to deliver higher growth or lower risk typically warrant higher PE ratios, while sluggish or riskier companies trade at lower ones. For Entergy, the current PE is 23.7x. To put that in perspective, this sits above the electric utilities industry average of 21.0x but below the peer group average of 31.4x. Compared to these benchmarks, Entergy appears to be moderately priced within its sector.

Instead of simply matching Entergy against peers or the industry, we prefer the Simply Wall St "Fair Ratio," which is calculated here as 24.6x. This proprietary metric combines not just industry norms but also company-specific factors like profit margins, growth prospects, size, and risk profile. Because it is tailored for Entergy’s unique situation, it gives a more nuanced measure of value than simple comparisons can provide. Entergy’s current PE of 23.7x is very close to its Fair Ratio, meaning the stock appears to be about fairly valued based on earnings.

Result: ABOUT RIGHT

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

Upgrade Your Decision Making: Choose your Entergy Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personal story, built from your perspective on a company’s future. It connects what you believe about Entergy's business, like expected revenues, margins, or risks, to a financial forecast and then to your own fair value for the stock. Narratives allow investors to go beyond standard models, capturing reasons and real-world context behind the numbers, all in a simple and approachable way.

On the Simply Wall St platform’s Community page, Narratives make it easy for you to explore and create different views, see scenarios from millions of other investors, and track how your thinking compares to the crowd. Narratives update dynamically as new information, such as breaking news or earnings releases, comes in so your assessment always stays relevant. Most importantly, they empower you to make better buy or sell decisions by directly comparing your calculated Fair Value to the current Price.

For example, some investors see Entergy’s future driven by robust Gulf South infrastructure and renewables growth, backing analyst highs of $109.0 per share. Others weigh climate and regulatory risks more heavily, supporting price targets as low as $67.0. Narratives let you define and refine your outlook with clarity and confidence.

Do you think there's more to the story for Entergy? Create your own Narrative to let the Community know!

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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