What is FEI's Intrinsic value?

First Trust MLP and Energy Income Fund (FEI) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, First Trust MLP and Energy Income Fund's estimated intrinsic value ranges from $6.79 to $9.00 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $6.79 -30.9%
Dividend Discount Model (Stable) $9.00 -8.4%

Is First Trust MLP and Energy Income Fund (FEI) undervalued or overvalued?

With the current market price at $9.83, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate First Trust MLP and Energy Income Fund's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 1.11 1.13
Cost of equity 9.0% 11.2%
Cost of debt 4.0% 23.9%
Tax rate 18.1% 23.6%
Debt/Equity ratio 0.21 0.21
After-tax WACC 8.0% 12.4%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 103.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.1%
  • Long-term growth rate: 4.0%
  • Fair value: $6.79 (-30.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.2% (Low) to 9.0% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $5 to $13
  • Selected fair value: $9.00 (-8.4% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $445M
Enterprise Value $539M
Trailing P/E 17.03
Forward P/E 21.28
Trailing EV/EBITDA 27.40
Current Dividend Yield 610.35%
Dividend Growth Rate (5Y) -16.72%
Debt-to-Equity Ratio 0.21

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $1.36
Dividend Discount Model (Stable) 43% $1.35
Weighted Average 100% $7.74

Investment Conclusion

Based on our comprehensive valuation analysis, First Trust MLP and Energy Income Fund's weighted average intrinsic value is $7.74, which is approximately 21.3% below the current market price of $9.83.

Key investment considerations:

  • Strong projected earnings growth (223% to 185% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.21)

Given these factors, we believe First Trust MLP and Energy Income Fund is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.