Global

Dissecting the Numbers for FirstEnergy Corp. (FE) and Berkshire Hathaway Inc. (BRK-B)

FirstEnergy Corp. (NYSE:FE) shares are up more than 12.38% this year and recently increased 0.94% or $0.32 to settle at $34.41. Berkshire Hathaway Inc. (NYSE:BRK-B), on the other hand, is down -0.62% year to date as of 04/13/2018. It currently trades at $197.00 and has returned 0.77% during the past week.

FirstEnergy Corp. (NYSE:FE) and Berkshire Hathaway Inc. (NYSE:BRK-B) are the two most active stocks in the Electric Utilities industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect FE to grow earnings at a -1.76% annual rate over the next 5 years. Comparatively, BRK-B is expected to grow at a 8.80% annual rate. All else equal, BRK-B’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. FirstEnergy Corp. (FE) has an EBITDA margin of 14.4%. This suggests that FE underlying business is more profitable

Valuation

FE trades at a forward P/E of 14.30, a P/B of 3.89, and a P/S of 1.16, compared to a forward P/E of 20.04, a P/B of 0.00, and a P/S of 2.03 for BRK-B. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. FE is currently priced at a -4.42% to its one-year price target of 36.00. Comparatively, BRK-B is -14.99% relative to its price target of 231.75. This suggests that BRK-B is the better investment over the next year.

Insider Activity and Investor Sentiment



The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. FE has a short ratio of 0.00 compared to a short interest of 2.32 for BRK-B. This implies that the market is currently less bearish on the outlook for FE.

Summary

Berkshire Hathaway Inc. (NYSE:BRK-B) beats FirstEnergy Corp. (NYSE:FE) on a total of 7 of the 13 factors compared between the two stocks. BRK-B is more profitable, generates a higher return on investment and has lower financial risk. BRK-B is more undervalued relative to its price target. Finally, LUK has better sentiment signals based on short interest.

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