Market Optimism for FirstEnergy Grows Amid Regulatory Shifts and Strong 2025 Performance

• Wondering if FirstEnergy is still a smart buy, or if the current price properly reflects its true value? You're not alone, and today we're digging into what really matters for investors looking at this stock.
• FirstEnergy’s shares have moved up 1.9% this week, are up 16.7% year-to-date, and have soared 115.6% over the last five years. This suggests renewed optimism or a shift in how the market assesses its risk and reward profile.
• Several headlines have swirled around recent regulatory developments and shifts in the energy sector, casting a spotlight on the company's business stability. Updates around regional energy policy and infrastructure investments have added extra energy to the stock’s story and could influence investor sentiment going forward.
• On our valuation checks, FirstEnergy scores 2 out of 6 for being undervalued. This means there is definitely room for discussion on what metrics matter most. Stick with us as we dig into each method, as well as a potentially better way to size up value at the end.

FirstEnergy scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: FirstEnergy Dividend Discount Model (DDM) Analysis

The Dividend Discount Model, or DDM, estimates a company’s intrinsic value by forecasting future dividend payments and discounting them back to today’s value. This method is especially relevant for companies, like FirstEnergy, with established records of dividend payments.

For FirstEnergy, the model assesses dividend per share (DPS) at $1.92, an impressive payout ratio of 99.18%, and a return on equity (ROE) of 9.15%. The expected annual dividend growth is very minimal, calculated at just 0.07%, essentially assuming dividends will hold steady going forward. The growth figure is based on the formula (1 – Payout Ratio) x ROE, which in FirstEnergy’s case delivers a low projected growth rate due to the near-total payout of earnings as dividends.

According to these projections, the estimated intrinsic value for FirstEnergy shares comes out to $27.86. When set against the current market price, this represents a 67.1% premium to today's trading level, signaling substantial overvaluation under the DDM framework.

While dividend strength is notable, the exceedingly high payout and stagnant growth assumptions suggest limited upside based on dividends alone.

Result: OVERVALUED

Our Dividend Discount Model (DDM) analysis suggests FirstEnergy may be overvalued by 67.1%. Discover 921 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 FirstEnergy.

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

The Price-to-Earnings (PE) ratio is a go-to valuation metric for profitable companies like FirstEnergy because it ties a company’s stock price directly to its earnings power. Investors often use the PE ratio to gauge whether a stock looks attractive relative to how much profit it generates. Higher growth prospects or lower risk can justify a higher ratio.

FirstEnergy currently trades at a PE ratio of 20.2x. This is just below the electric utilities industry average of 20.5x and noticeably higher than the peer average of 15.7x. Typically, a company with stronger growth, better margins, or lower risk might command a higher multiple, while companies with more uncertainty or weaker earnings growth would trade at a discount. That context is crucial in judging if FirstEnergy's current valuation makes sense.

Simply Wall St’s proprietary “Fair Ratio” aims to answer just that. Instead of relying on a simple peer or industry comparison, the Fair Ratio adjusts for a variety of company specifics. It considers FirstEnergy’s growth outlook, profit margins, risk profile, market cap, and position within its sector. For FirstEnergy, the Fair Ratio is calculated at 21.9x, slightly above its current multiple. This makes the Fair Ratio a more tailored benchmark for whether the stock is being valued appropriately at this time.

With FirstEnergy’s current PE ratio at 20.2x and a Fair Ratio of 21.9x, the stock appears slightly inexpensive but largely in line with what fundamentals suggest it should be.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1423 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your FirstEnergy Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is your unique perspective or "story" about a company like FirstEnergy, connecting what you believe about the business to a transparent financial forecast and, ultimately, to your own estimate of fair value.

Unlike traditional models that rely solely on numbers, Narratives give you the tools to describe why you think FirstEnergy's future might look a certain way. This makes your investment thesis both visual and actionable. This approach, available right now to millions of investors on Simply Wall St’s Community page, helps you quickly compare your view of fair value to the current stock price and decide whether to buy or sell.

Narratives are dynamic and update automatically as new information emerges in news or earnings releases. Your perspective always reflects the latest developments. For example, one investor might build their FirstEnergy Narrative on robust infrastructure investments and improving profit margins, arriving at a $50 fair value. Another investor might see regulatory risks and slower revenue growth, resulting in a much more cautious estimate near $27.86.

Do you think there's more to the story for FirstEnergy? 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com