DTE Energy Company (NYSE:DTE) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. This difference directly flows down to how much the stock is worth. Operating in the multi-utilities industry, DTE is currently valued at US$20.34b. Today we will examine DTE’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
Is DTE Energy generating enough cash?
Free cash flow (FCF) is the amount of cash DTE Energy has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
There are two methods I will use to evaluate the quality of DTE Energy’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
What’s the cash flow outlook for DTE Energy?
Can DTE Energy improve its operating cash production in the future? Let’s take a quick look at the cash flow trend DTE Energy is expected to deliver over time. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 12.1%, ramping up from its current levels of US$2.37b to US$2.65b in three years’ time. Furthermore, breaking down growth into a year on year basis, DTE is able to increase its growth rate each year, from 3.3% in the upcoming year, to 4.3% by the end of the third year. The overall future outlook seems buoyant if DTE can maintain its levels of capital expenditure as well.
Now you know to keep cash flows in mind, You should continue to research DTE Energy to get a better picture of the company by looking at:
- Historical Performance: What has DTE’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on DTE Energy’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.