Analyzing AEP’s Valuation after Its 4Q16 Results
American Electric Power (AEP) has rallied nearly 8% in the last year. It’s currently trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 9.5x.
AEP’s five-year historical EV-to-EBITDA average stands at nearly 9.5x. US utilities’ (XLU) industry average is near 10.5x. AEP seems fairly valued compared to the industry average and its historical average.
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The EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, regardless of its capital structure. EV is the combination of a company’s debt and market capitalization minus its cash holdings.