Centrais Eletricas Brasileiras SA (EBR): A Deep Dive into Its Performance Potential
Long-established in the Utilities - Independent Power Producers industry, Centrais Eletricas Brasileiras SA (NYSE:EBR) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 4.44%, juxtaposed with a three-month change of -7.91%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Centrais Eletricas Brasileiras SA.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 4/10
Profitability rank: 5/10
Growth rank: 5/10
GF Value rank: 3/10
Momentum rank: 5/10
Based on the above method, GuruFocus assigned Centrais Eletricas Brasileiras SA the GF Score of 68 out of 100, which signals poor future outperformance potential.
Centrais Eletricas Brasileiras SA: A Snapshot
Centrais Eletricas Brasileiras SA, or Eletrobras, is a mixed capital, Brazilian electric utility company of which the majority shareholder is the Government of Brazil. Eletrobras, through its subsidiaries, controls a sizable amount of total installed electricity generation, transmission, and distribution in Brazil. The company operates a portfolio of wind, thermal, hydro, and nuclear power plants located throughout the country. The vast majority of the total energy produced by Eletrobras comes from its hydroelectric facilities. The company primarily generates revenue from the administration segment. About half of Eletrobras' electricity sales are made using free market agreements, while the other half is completed through auctions and contracts.
Financial Strength Analysis
Centrais Eletricas Brasileiras SA's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0.86 positions it worse than 87.03% of 316 companies in the Utilities - Independent Power Producers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just 0.68, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.32 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 4.33, which is above Joel Tillinghast's warning level of 4 and is better than 51.75% of 315 companies in the Utilities - Independent Power Producers industry.
Profitability Analysis
Centrais Eletricas Brasileiras SA's low Profitability rank can also raise warning signals. The company's Operating Margin has declined over the past five years ((-80.48%)), as shown by the following data: 2018: 62.94; 2019: 30.96; 2020: 7.69; 2021: 13.02; 2022: 12.29.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Centrais Eletricas Brasileiras SA has a rich history and a significant role in the Utilities - Independent Power Producers industry, its current financial indicators suggest that it may struggle to maintain its past performance levels. Therefore, investors should exercise caution and conduct thorough research before making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
