Entergy Corporation (ETR)

Conclusion

Entergy is a regulated electric utility that generates, transmits and sells power to about 3.1 million customers in Arkansas, Louisiana, Mississippi, Texas and New Orleans, with roughly 25,000 megawatts of generating capacity. At 111.79 USD on 2026-11-09, the market capitalisation is 53.4 billion USD and the enterprise value is 84.0 billion USD.

The verdict is overvalued. The fair value band runs from 64.03 to 96.04 USD with a midpoint of 80.03 USD, giving a margin of safety of -28.4% at the current price. The price-to-earnings ratio of 25.9 compares with a ten-year median of 20.1, a premium of 28.7%, and enterprise value to EBITDA of 12.9 compares with a median of 11.4, a premium of 13.0%. The discounted cash flow value is not available because starting free cash flow is negative, and the growth implied by the price (reverse DCF) is not available either. Revenue grew at 5.1% a year over five years and EPS at 2.4% a year, which is the growth the price has to be measured against.

What holds the case up is the operating margin of 24.0%, well above its ten-year median of 15.3%, and seven earnings beats in the last eight quarters. What would break it is the balance sheet: net debt of 4.69x EBITDA, interest coverage of 2.23x and an Altman Z-score of 1.11, all weak. Free cash flow over the last twelve months is negative at -185.6% of earnings, so the dividend is not covered by free cash flow.

Financial health

Financial strength is red, held back by three weak measures: net debt to EBITDA of 4.69x, interest coverage of 2.23x and an Altman Z-score of 1.11. The current ratio of 1.18 and quick ratio of 0.83 are not a source of strength. Debt to equity is 1.74. The Altman model was designed for manufacturers, and Entergy is a utility, so its zone of distress should be read with that limit in mind. Insolvency risk is low, about 1.3% by the estimate of the Ohlson model over one to two years, based on figures at 2025-12-31. That low estimate sits against a weak leverage profile, which is why the overall colour stays red.

Earnings quality

Earnings quality is red because cash generation does not follow reported earnings. Free cash flow conversion is -185.6% over the last twelve months and -155.3% over five years, and free cash flow after stock-based compensation is -3.8 billion USD. The accrual ratio is -4.9%, which is a supportive sign. Stock-based compensation relative to revenue is not available. The share count has grown at 2.3% a year over five years, so the company has been issuing shares rather than buying them back. The Piotroski score is 6 out of 9. The Beneish M-score is not available. Earnings have beaten estimates in seven of the last eight quarters, with an average surprise of 8.4%. Analysts have raised the current-year estimate in eight of the last nine revisions over thirty days, and expect next-year EPS to grow 16.1%.

Profitability

Profitability is green. The gross margin is 38.4%, in line with its ten-year median. The operating margin is 24.0% against a median of 15.3%, and the net margin is 14.7% against a median of 9.2%. Operating margin stability is 0.65. Return on invested capital is 6.2% against a weighted average cost of capital of 7.0%, giving a given difference of -0.8%, so the company is not yet earning more than its cost of capital. Return on equity is 10.3%. The DuPont split shows that leverage does much of the work: a net margin of 13.7%, asset turnover of 0.18 and an equity multiplier of 4.19, all at 2025-12-31.

Growth

Growth is yellow. Revenue compound growth is -2.0% over three years, 5.1% over five years and 1.2% over ten years. Revenue grew in 4 of 10 comparable years. EPS compound growth is 13.9% over three years and 2.4% over five years, so recent earnings growth is faster than the longer record. The next-year EPS growth estimate of 16.1% is the strongest growth signal, but it rests on analyst forecasts rather than on delivered results, and the five-year revenue record is modest.

Valuation

Valuation is red. The verdict is overvalued, with a margin of safety of -28.4% at a price of 111.79 USD against a fair value midpoint of 80.03 USD. The price-to-earnings ratio of 25.9 is a 28.7% premium to its ten-year median of 20.1, enterprise value to EBITDA of 12.9 is a 13.0% premium to 11.4, price to sales of 3.8 is a 116.4% premium to 1.8 and price to book of 2.7 is a 52.7% premium to 1.7. The discounted cash flow value is not available because starting free cash flow is negative, though its inputs are a discount rate of 8.9% and terminal growth of 2.5%. The fair value from historical multiples is 80.03 USD. The fair value is an order-of-magnitude figure built on fixed assumptions, not a price target. The dividend yield is 2.2%, with a forward yield of 2.5%. The payout on free cash flow is not meaningful, because free cash flow is negative.

Risks

The most serious risk is leverage. Net debt of 4.69x EBITDA and interest coverage of 2.23x leave little room for weaker earnings or higher borrowing costs, and the Altman Z-score of 1.11 signals stress. Negative free cash flow means that investment and dividends are funded by borrowing or share issuance, which the 2.3% annual rise in share count reflects. If the company cannot convert earnings into cash, the premium multiples are harder to defend. Several values are not available: the discounted cash flow value, the reverse DCF implied growth, stock-based compensation relative to revenue, and the Beneish M-score. This analysis also lacks a debt maturity schedule and revenue by segment, so refinancing risk and the mix between regulated and other activities cannot be assessed.