Intrinsic value of FirstEnergy - FE

Previous Close

$38.33

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$38.33

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

We calculate the intrinsic value of FE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.09
  3.00
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
Revenue, $m
  10,780
  14,438
  14,900
  15,403
  15,949
  16,537
  17,168
  17,844
  18,566
  19,334
  20,151
  21,018
  21,937
  22,910
  23,939
  25,027
  26,175
  27,387
  28,665
  30,012
  31,431
  32,927
  34,501
  36,158
  37,902
  39,736
  41,666
  43,696
  45,829
  48,073
  50,431
Variable operating expenses, $m
 
  21,582
  22,254
  22,988
  23,782
  24,638
  25,558
  26,542
  27,592
  28,711
  29,900
  30,601
  31,939
  33,355
  34,854
  36,437
  38,109
  39,873
  41,733
  43,695
  45,762
  47,938
  50,230
  52,643
  55,182
  57,853
  60,662
  63,617
  66,724
  69,990
  73,424
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  22,824
  21,582
  22,254
  22,988
  23,782
  24,638
  25,558
  26,542
  27,592
  28,711
  29,900
  30,601
  31,939
  33,355
  34,854
  36,437
  38,109
  39,873
  41,733
  43,695
  45,762
  47,938
  50,230
  52,643
  55,182
  57,853
  60,662
  63,617
  66,724
  69,990
  73,424
Operating income, $m
  -8,262
  -7,144
  -7,355
  -7,584
  -7,833
  -8,101
  -8,389
  -8,697
  -9,026
  -9,377
  -9,749
  -9,583
  -10,002
  -10,445
  -10,914
  -11,410
  -11,934
  -12,486
  -13,069
  -13,683
  -14,330
  -15,012
  -15,730
  -16,485
  -17,280
  -18,117
  -18,996
  -19,922
  -20,895
  -21,917
  -22,993
EBITDA, $m
  -6,265
  -4,969
  -5,128
  -5,301
  -5,489
  -5,691
  -5,909
  -6,141
  -6,390
  -6,654
  -6,935
  -7,234
  -7,550
  -7,885
  -8,239
  -8,613
  -9,008
  -9,426
  -9,865
  -10,329
  -10,818
  -11,332
  -11,874
  -12,444
  -13,044
  -13,676
  -14,340
  -15,038
  -15,773
  -16,545
  -17,357
Interest expense (income), $m
  1,050
  1,102
  1,147
  1,217
  1,293
  1,376
  1,466
  1,561
  1,664
  1,774
  1,890
  2,014
  2,146
  2,285
  2,433
  2,589
  2,754
  2,929
  3,113
  3,307
  3,511
  3,727
  3,954
  4,193
  4,444
  4,709
  4,987
  5,280
  5,588
  5,912
  6,253
Earnings before tax, $m
  -9,232
  -8,246
  -8,502
  -8,801
  -9,127
  -9,478
  -9,855
  -10,259
  -10,690
  -11,150
  -11,639
  -11,597
  -12,148
  -12,731
  -13,347
  -13,999
  -14,688
  -15,415
  -16,181
  -16,990
  -17,841
  -18,739
  -19,683
  -20,678
  -21,724
  -22,825
  -23,984
  -25,202
  -26,483
  -27,830
  -29,246
Tax expense, $m
  -3,055
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -6,177
  -8,246
  -8,502
  -8,801
  -9,127
  -9,478
  -9,855
  -10,259
  -10,690
  -11,150
  -11,639
  -11,597
  -12,148
  -12,731
  -13,347
  -13,999
  -14,688
  -15,415
  -16,181
  -16,990
  -17,841
  -18,739
  -19,683
  -20,678
  -21,724
  -22,825
  -23,984
  -25,202
  -26,483
  -27,830
  -29,246

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  199
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  43,148
  43,486
  44,878
  46,395
  48,038
  49,810
  51,712
  53,748
  55,921
  58,236
  60,696
  63,308
  66,076
  69,007
  72,106
  75,382
  78,840
  82,490
  86,339
  90,397
  94,673
  99,176
  103,918
  108,909
  114,162
  119,688
  125,500
  131,613
  138,041
  144,798
  151,902
Adjusted assets (=assets-cash), $m
  42,949
  43,486
  44,878
  46,395
  48,038
  49,810
  51,712
  53,748
  55,921
  58,236
  60,696
  63,308
  66,076
  69,007
  72,106
  75,382
  78,840
  82,490
  86,339
  90,397
  94,673
  99,176
  103,918
  108,909
  114,162
  119,688
  125,500
  131,613
  138,041
  144,798
  151,902
Revenue / Adjusted assets
  0.251
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
Average production assets, $m
  1,947
  33,076
  34,135
  35,289
  36,538
  37,886
  39,333
  40,881
  42,534
  44,295
  46,166
  48,153
  50,258
  52,487
  54,845
  57,336
  59,967
  62,743
  65,671
  68,757
  72,009
  75,435
  79,041
  82,838
  86,833
  91,036
  95,457
  100,106
  104,995
  110,135
  115,538
Working capital, $m
  -4,176
  -809
  -834
  -863
  -893
  -926
  -961
  -999
  -1,040
  -1,083
  -1,128
  -1,177
  -1,228
  -1,283
  -1,341
  -1,401
  -1,466
  -1,534
  -1,605
  -1,681
  -1,760
  -1,844
  -1,932
  -2,025
  -2,122
  -2,225
  -2,333
  -2,447
  -2,566
  -2,692
  -2,824
Total debt, $m
  22,552
  20,480
  21,732
  23,097
  24,576
  26,171
  27,883
  29,715
  31,671
  33,754
  35,969
  38,319
  40,810
  43,448
  46,238
  49,185
  52,298
  55,583
  59,047
  62,699
  66,548
  70,601
  74,868
  79,360
  84,087
  89,061
  94,292
  99,794
  105,578
  111,660
  118,053
Total liabilities, $m
  36,907
  39,138
  40,390
  41,755
  43,234
  44,829
  46,541
  48,373
  50,329
  52,412
  54,627
  56,977
  59,468
  62,106
  64,896
  67,843
  70,956
  74,241
  77,705
  81,357
  85,206
  89,259
  93,526
  98,018
  102,745
  107,719
  112,950
  118,452
  124,236
  130,318
  136,711
Total equity, $m
  6,241
  4,349
  4,488
  4,639
  4,804
  4,981
  5,171
  5,375
  5,592
  5,824
  6,070
  6,331
  6,608
  6,901
  7,211
  7,538
  7,884
  8,249
  8,634
  9,040
  9,467
  9,918
  10,392
  10,891
  11,416
  11,969
  12,550
  13,161
  13,804
  14,480
  15,190
Total liabilities and equity, $m
  43,148
  43,487
  44,878
  46,394
  48,038
  49,810
  51,712
  53,748
  55,921
  58,236
  60,697
  63,308
  66,076
  69,007
  72,107
  75,381
  78,840
  82,490
  86,339
  90,397
  94,673
  99,177
  103,918
  108,909
  114,161
  119,688
  125,500
  131,613
  138,040
  144,798
  151,901
Debt-to-equity ratio
  3.614
  4.710
  4.840
  4.980
  5.120
  5.250
  5.390
  5.530
  5.660
  5.800
  5.930
  6.050
  6.180
  6.300
  6.410
  6.520
  6.630
  6.740
  6.840
  6.940
  7.030
  7.120
  7.200
  7.290
  7.370
  7.440
  7.510
  7.580
  7.650
  7.710
  7.770
Adjusted equity ratio
  0.145
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6,177
  -8,246
  -8,502
  -8,801
  -9,127
  -9,478
  -9,855
  -10,259
  -10,690
  -11,150
  -11,639
  -11,597
  -12,148
  -12,731
  -13,347
  -13,999
  -14,688
  -15,415
  -16,181
  -16,990
  -17,841
  -18,739
  -19,683
  -20,678
  -21,724
  -22,825
  -23,984
  -25,202
  -26,483
  -27,830
  -29,246
Depreciation, amort., depletion, $m
  1,997
  2,175
  2,227
  2,283
  2,344
  2,410
  2,480
  2,556
  2,637
  2,723
  2,814
  2,349
  2,452
  2,560
  2,675
  2,797
  2,925
  3,061
  3,203
  3,354
  3,513
  3,680
  3,856
  4,041
  4,236
  4,441
  4,656
  4,883
  5,122
  5,372
  5,636
Funds from operations, $m
  3,546
  -6,071
  -6,275
  -6,518
  -6,782
  -7,068
  -7,374
  -7,703
  -8,054
  -8,428
  -8,826
  -9,248
  -9,696
  -10,170
  -10,672
  -11,203
  -11,763
  -12,354
  -12,978
  -13,636
  -14,329
  -15,059
  -15,828
  -16,637
  -17,489
  -18,385
  -19,327
  -20,319
  -21,361
  -22,457
  -23,610
Change in working capital, $m
  175
  -24
  -26
  -28
  -31
  -33
  -35
  -38
  -40
  -43
  -46
  -49
  -51
  -54
  -58
  -61
  -64
  -68
  -72
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -132
Cash from operations, $m
  3,371
  -6,047
  -6,249
  -6,490
  -6,752
  -7,035
  -7,339
  -7,665
  -8,013
  -8,385
  -8,780
  -9,199
  -9,644
  -10,116
  -10,614
  -11,142
  -11,699
  -12,286
  -12,906
  -13,560
  -14,249
  -14,975
  -15,739
  -16,544
  -17,391
  -18,282
  -19,219
  -20,205
  -21,242
  -22,332
  -23,478
Maintenance CAPEX, $m
  0
  -1,567
  -1,613
  -1,665
  -1,721
  -1,782
  -1,848
  -1,919
  -1,994
  -2,075
  -2,161
  -2,252
  -2,349
  -2,452
  -2,560
  -2,675
  -2,797
  -2,925
  -3,061
  -3,203
  -3,354
  -3,513
  -3,680
  -3,856
  -4,041
  -4,236
  -4,441
  -4,656
  -4,883
  -5,122
  -5,372
New CAPEX, $m
  -3,067
  -957
  -1,058
  -1,154
  -1,250
  -1,347
  -1,447
  -1,549
  -1,653
  -1,761
  -1,872
  -1,986
  -2,105
  -2,229
  -2,358
  -2,491
  -2,631
  -2,776
  -2,928
  -3,086
  -3,252
  -3,425
  -3,607
  -3,796
  -3,995
  -4,203
  -4,421
  -4,649
  -4,889
  -5,140
  -5,403
Cash from investing activities, $m
  -3,281
  -2,524
  -2,671
  -2,819
  -2,971
  -3,129
  -3,295
  -3,468
  -3,647
  -3,836
  -4,033
  -4,238
  -4,454
  -4,681
  -4,918
  -5,166
  -5,428
  -5,701
  -5,989
  -6,289
  -6,606
  -6,938
  -7,287
  -7,652
  -8,036
  -8,439
  -8,862
  -9,305
  -9,772
  -10,262
  -10,775
Free cash flow, $m
  90
  -8,571
  -8,921
  -9,309
  -9,723
  -10,165
  -10,634
  -11,132
  -11,661
  -12,220
  -12,812
  -13,438
  -14,099
  -14,796
  -15,532
  -16,308
  -17,126
  -17,988
  -18,895
  -19,850
  -20,855
  -21,913
  -23,026
  -24,196
  -25,427
  -26,721
  -28,081
  -29,511
  -31,014
  -32,593
  -34,253
Issuance/(repayment) of debt, $m
  620
  806
  1,252
  1,365
  1,479
  1,594
  1,712
  1,832
  1,956
  2,083
  2,215
  2,350
  2,491
  2,638
  2,790
  2,948
  3,113
  3,285
  3,464
  3,652
  3,848
  4,053
  4,268
  4,492
  4,727
  4,973
  5,231
  5,502
  5,785
  6,082
  6,393
Issuance/(repurchase) of shares, $m
  0
  8,670
  8,641
  8,953
  9,291
  9,655
  10,045
  10,462
  10,908
  11,382
  11,885
  11,858
  12,424
  13,024
  13,657
  14,327
  15,034
  15,780
  16,566
  17,395
  18,269
  19,189
  20,157
  21,177
  22,250
  23,378
  24,565
  25,813
  27,126
  28,506
  29,956
Cash from financing (excl. dividends), $m  
  589
  9,476
  9,893
  10,318
  10,770
  11,249
  11,757
  12,294
  12,864
  13,465
  14,100
  14,208
  14,915
  15,662
  16,447
  17,275
  18,147
  19,065
  20,030
  21,047
  22,117
  23,242
  24,425
  25,669
  26,977
  28,351
  29,796
  31,315
  32,911
  34,588
  36,349
Total cash flow (excl. dividends), $m
  679
  904
  972
  1,009
  1,047
  1,085
  1,123
  1,163
  1,203
  1,245
  1,288
  771
  817
  865
  915
  967
  1,021
  1,077
  1,136
  1,197
  1,262
  1,329
  1,399
  1,473
  1,550
  1,631
  1,715
  1,804
  1,897
  1,994
  2,096
Retained Cash Flow (-), $m
  6,180
  -8,670
  -8,641
  -8,953
  -9,291
  -9,655
  -10,045
  -10,462
  -10,908
  -11,382
  -11,885
  -11,858
  -12,424
  -13,024
  -13,657
  -14,327
  -15,034
  -15,780
  -16,566
  -17,395
  -18,269
  -19,189
  -20,157
  -21,177
  -22,250
  -23,378
  -24,565
  -25,813
  -27,126
  -28,506
  -29,956
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -7,765
  -7,668
  -7,944
  -8,244
  -8,570
  -8,922
  -9,300
  -9,705
  -10,137
  -10,598
  -11,087
  -11,608
  -12,159
  -12,743
  -13,360
  -14,013
  -14,703
  -15,431
  -16,198
  -17,007
  -17,860
  -18,758
  -19,704
  -20,700
  -21,747
  -22,850
  -24,010
  -25,229
  -26,512
  -27,860
Discount rate, %
 
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.60
  17.43
  18.30
  19.22
  20.18
  21.19
  22.24
  23.36
  24.52
  25.75
  27.04
  28.39
  29.81
  31.30
  32.87
  34.51
  36.23
  38.05
  39.95
  41.95
  44.04
PV of cash for distribution, $m
 
  -7,015
  -6,198
  -5,685
  -5,168
  -4,650
  -4,139
  -3,640
  -3,160
  -2,705
  -2,282
  -1,894
  -1,545
  -1,238
  -972
  -748
  -563
  -415
  -298
  -208
  -142
  -94
  -60
  -38
  -23
  -13
  -7
  -4
  -2
  -1
  0
Current shareholders' claim on cash, %
  100
  68.2
  48.1
  33.9
  23.8
  16.7
  11.7
  8.2
  5.8
  4.0
  2.8
  2.0
  1.4
  1.0
  0.7
  0.5
  0.4
  0.2
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

FirstEnergy Corp. is a holding company. The Company is engaged in holding, directly or indirectly, all of the outstanding equity of its principal subsidiaries. Its segments include Regulated Distribution, Regulated Transmission, Competitive Energy Services (CES) and Corporate/Other. As of December 31, 2016, the Regulated Distribution segment distributed electricity through the Company's 10 utility operating companies, serving approximately six million customers, and purchased power for its provider of last resort (POLR), standard offer service (SOS), standard offer service (SSO) and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland. The Regulated Transmission segment transmits electricity through transmission facilities owned and operated by American Transmission Systems, Incorporated (ATSI) and Trans-Allegheny Interstate Line Company (TrAIL). The CES segment primarily supplies electricity to end use customers through retail and wholesale arrangements.

FINANCIAL RATIOS  of  FirstEnergy (FE)

Valuation Ratios
P/E Ratio -2.7
Price to Sales 1.2
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 55.8
Growth Rates
Sales Growth Rate -3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6%
Cap. Spend. - 3 Yr. Gr. Rate 1.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 291.5%
Total Debt to Equity 361.4%
Interest Coverage -8
Management Effectiveness
Return On Assets -11.5%
Ret/ On Assets - 3 Yr. Avg. -2.1%
Return On Total Capital -19.6%
Ret/ On T. Cap. - 3 Yr. Avg. -5.7%
Return On Equity -66.2%
Return On Equity - 3 Yr. Avg. -19.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -42.5%
EBITDA Margin - 3 Yr. Avg. -0.7%
Operating Margin -56.7%
Oper. Margin - 3 Yr. Avg. -12.3%
Pre-Tax Margin -63.4%
Pre-Tax Margin - 3 Yr. Avg. -18.8%
Net Profit Margin -42.4%
Net Profit Margin - 3 Yr. Avg. -12.2%
Effective Tax Rate 33.1%
Eff/ Tax Rate - 3 Yr. Avg. 14.6%
Payout Ratio -9.9%

FE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FE stock intrinsic value calculation we used $14017 million for the last fiscal year's total revenue generated by FirstEnergy. The default revenue input number comes from 2016 income statement of FirstEnergy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FE stock valuation model: a) initial revenue growth rate of 3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.7%, whose default value for FE is calculated based on our internal credit rating of FirstEnergy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of FirstEnergy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FE stock the variable cost ratio is equal to 149.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for FirstEnergy.

Corporate tax rate of 27% is the nominal tax rate for FirstEnergy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FE are equal to 229.1%.

Life of production assets of 20.5 years is the average useful life of capital assets used in FirstEnergy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FE is equal to -5.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3925 million for FirstEnergy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 486.021 million for FirstEnergy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of FirstEnergy at the current share price and the inputted number of shares is $18.6 billion.

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COMPANY NEWS

▶ FirstEnergy: 3Q Earnings Snapshot   [Oct-25-18 05:05PM  Associated Press]
▶ Turner Elected to FirstEnergy Board of Directors   [Sep-19-18 09:10AM  PR Newswire]
▶ Brighter Future for FirstEnergy   [Sep-07-18 07:00AM  Morningstar]
▶ Spark Power Announces Board of Directors   [Sep-06-18 11:42AM  CNW Group]
▶ Utility to close coal power plants in Ohio, Pennsylvania   [Aug-30-18 03:00PM  Associated Press]
▶ Top Ranked Income Stocks to Buy for August 29th   [Aug-29-18 10:50AM  Zacks]
▶ [$$] FirstEnergy to Provide $1.1 Billion in Bankruptcy Settlement   [Aug-28-18 07:01AM  The Wall Street Journal]
▶ Correction: Earns-FirstEnergy story   [02:07PM  Associated Press]
▶ Energy suppliers, distributors clash over how electricity is billed   [Jul-16-18 03:21PM  American City Business Journals]
▶ [$$] Exelon Makes Bid to Buy FirstEnergy's Retail Power Business   [Jul-10-18 06:02PM  The Wall Street Journal]
▶ [$$] FirstEnergy Solutions Pitches Retail Power Sale   [02:31PM  The Wall Street Journal]
▶ 7 S&P 500 Companies Whose Debt Scares Me   [Jul-06-18 01:30PM  InvestorPlace]
Financial statements of FE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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