With a notable daily gain of 8.02% and a 3-month gain of 14.67%, ALLETE Inc (ALE, Financial) has been drawing attention in the market. Its Earnings Per Share (EPS) stands at 4.31. Investors are now faced with the question: Is ALLETE modestly undervalued? This article aims to provide a detailed valuation analysis to explore this query further.
Company Introduction
ALLETE Inc (ALE, Financial) is a competitive energy provider in America's Upper Midwest, investing in transmission infrastructure and energy-centric businesses. The company comprises regulated utilities like Minnesota Power and SWL&P, with investments in ATC, a utility owning electric transmission assets across several states. ALLETE Clean Energy is dedicated to developing and operating clean, renewable energy projects. A look at the stock price compared to the GF Value, which is set at $77.74, suggests that ALLETE might be trading below its fair value, hinting at a potentially undervalued status worthy of a deeper examination.
Summarize GF Value
The GF Value is a unique intrinsic value metric calculated using historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line suggests the fair trading value of the stock. If the stock's price is significantly above this line, it's considered overvalued, and vice versa. With ALLETE's current share price at $60.76 and a market cap of $3.50 billion, the stock appears to be modestly undervalued, indicating a potential for higher future returns.
Because ALLETE is relatively undervalued, the long-term return of its stock is likely to outpace its business growth.
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Financial Strength
Investors must scrutinize a company's financial strength to avoid potential capital loss. ALLETE's cash-to-debt ratio of 0.07 places it lower than 79.42% of its industry peers. This leads to a GuruFocus financial strength ranking of 4 out of 10, indicating a weak balance sheet.
Profitability and Growth
Investing in companies with a track record of profitability, like ALLETE, which has been profitable for 10 out of the past 10 years, is generally less risky. ALLETE's operating margin of 9.01% is lower than 59.92% of its industry counterparts, leading to a fair profitability rank. On the growth front, ALLETE's average annual revenue growth rate is 5.3%, which is lower than 63.45% of the industry. Its 3-year average EBITDA growth rate of -4.8% also ranks lower than 77.61% of its peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) helps assess profitability. ALLETE's ROIC over the past 12 months is 2.52, significantly lower than its WACC of 7.82, indicating that the company may not be creating value for shareholders.
Conclusion
In summary, ALLETE (ALE, Financial) presents signs of being modestly undervalued. The company's financial condition is poor, and its profitability stands at a fair level. Its growth ranks below many of its industry counterparts. For a more detailed financial analysis, interested investors can view ALLETE's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
