Current Price: ~ $69/share

Yield: ~ 4.83%

Entergy is an integrated energy company with two primary businesses. Its regulated utility distributes power to 2.8 million customers across four states through six utilities in the Southeast. Its wholesale commodity segment owns and operates six nuclear units, approximately 5,000 MW of power generation capacity, primarily in the Northeast, and is the second-largest nuclear operator in the U.S.

Estimated WACC for the firm today is 5.71% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year | FCF $Millions |

2002 | 651 |

2003 | 437 |

2004 | 1519 |

2005 | -160 |

2006 | 1419 |

2007 | 237 |

2008 | 845 |

2009 | 2408 |

2010 | 1544 |

2011 | -199 |

Average Annual Growth FCF: ~ -75%

Consensus Forecast Industry 5-Year Growth: ~ 7% per year

Consensus Forecast Company 5-Year Growth: ~ 1% per year

Internal Growth Rate: ~ 1%

Sustainable Growth Rate: ~ 7%

**Scenario 1**

Average FCF (2011, 2010, 2009) is $1251 million

- Start at $1251 million FCF
- Assume a 5-year growth rate in FCF of 1% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 1251 |

1 | 1264 |

2 | 1276 |

3 | 1289 |

4 | 1302 |

5 | 1315 |

Terminal Value | 23246 |

The firm's future free cash flows, discounted at a WACC of 5.71%, give a present value for the entire firm (Debt + Equity) of $23075 million. If the firm's fair value of debt is estimated at $12618 million, then the fair value of the firm's equity could be $10457 million. $10457 million / 177 million outstanding shares is approximately $59 per share and a 20% margin of safety is $47/share.

**Scenario 2**

All else being equal,

- Assume a 5-year growth rate in FCF of 3% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 1251 |

1 | 1289 |

2 | 1327 |

3 | 1367 |

4 | 1408 |

5 | 1450 |

Terminal Value | 26148 |

- Present Value of the entire firm (Debt + Equity): $25596 million
- Value of Equity: $12978 million or $73/share
- 20% margin of safety is $58/share

Sources

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.