Is Entergy (ETR) Still a Buy After a 29% Rally?

The recent 29% surge in Entergy Corporation (ETR) has sparked renewed debate about its valuation. With the stock trading at a price-to-earnings (P/E) ratio of 22.54 as of 2025-well above the utilities sector average of 21.98-investors are questioning whether the rally has priced in all the company's growth potential or if the stock is now overvalued relative to its fundamentals. This analysis examines Entergy's valuation divergence from its peers and the sustainability of its growth premium to determine whether the stock remains a compelling buy.

Valuation Divergence: A Priced-Up Utility

Entergy's trailing P/E of 22.54 and forward P/E of 20.88 place it at a slight premium to the S&P 500 Utilities Sector's average trailing P/E of 21.98. While the sector's P/E is already considered overvalued compared to its 5-year average of 20.08, Entergy's metrics suggest it is trading even more expensively. This divergence is further highlighted by its price-to-book (P/B) ratio of 3.20 and an enterprise value-to-EBITDA (EV/EBITDA) multiple of 12.5x both of which exceed the sector's typical ranges. For context, Duke Energy (DUK) trades at a P/E of 18.17, while Dominion Energy (D) commands a P/E of 22.09 illustrating that Entergy's valuation sits near the upper end of the peer spectrum.

The PEG ratio-a metric that adjusts the P/E for earnings growth expectations-offers additional insight. Entergy's PEG of 1.28 implies the stock is overvalued relative to its projected earnings growth of 11.8%. In contrast, the utilities sector's median EPS CAGR from 2024 to 2027 is forecast at 6.9%, meaning Entergy's growth premium is modestly higher but not exceptional. This suggests that while the market is rewarding Entergy's growth, it may be doing so at a price that lacks a clear margin of safety.

Growth Premium: Can Earnings Justify the Hike?

Entergy's 11.8% earnings growth estimate outpaces the sector's 6.7% CAGR driven by its regulated operations, and its revenue growth of 12.5% for the trailing twelve months is largely a function of inflation-linked rate adjustments rather than organic demand. This raises questions about the sustainability of its growth profile.

Comparing Entergy to peers like Dominion Energy, which is projected to grow EPS by 5.52% in 2026 and 6.86% in 2027, underscores that Entergy's growth premium is not insurmountable. Yet, its higher P/E and PEG ratios suggest investors are paying a premium for slightly better growth. This premium may be justified if Entergy's capital expenditures and regulatory approvals continue to drive earnings expansion, but it also leaves the stock vulnerable to earnings shortfalls or rising discount rates.

Peer Comparison: A Tale of Two Utilities

The utilities sector is inherently defensive, but Entergy's valuation divergence from peers like Duke Energy highlights its unique positioning. Duke's lower P/E of 18.17 reflects a more conservative valuation, while Dominion's 22.09 aligns closely with Entergy's 22.54. However, Entergy's forward P/E of 20.88 is still higher than the sector's forward P/E of 18.23 indicating that the market is pricing in stronger near-term performance.

This premium may stem from Entergy's geographic diversification and its focus on renewable energy integration, which could insulate it from regulatory headwinds facing some peers. Yet, with interest rates stabilizing and bond yields offering competitive returns, the appeal of high-P/E utilities may wane unless earnings growth accelerates meaningfully.

Conclusion: A Buy, But With Caution

Entergy's 29% rally has brought its valuation into alignment with the broader utilities sector's overvalued territory. While its earnings growth premium and strategic advantages justify a slight premium to peers, the PEG ratio of 1.28 and elevated P/E relative to the sector's 5-year average signal caution. Investors should monitor Entergy's ability to execute its capital expenditure plans and navigate regulatory challenges, as these factors will determine whether the growth premium is sustained. For now, the stock remains a buy for those comfortable with its risk profile, but the margin of safety has narrowed significantly.