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How Does PPL Corporation Look ahead of Its 4Q16 Earnings?

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Part 4
How Does PPL Corporation Look ahead of Its 4Q16 Earnings? PART 4 OF 6

PPL Stock Looks Fairly Valued but Not Attractive: Here’s Why

Valuation

PPL Corporation (PPL) stock is currently trading at the same levels it saw at this time in 2016. The Brexit vote strongly weighed on PPL in the second half of 2016 and might have kept investors away.

On January 23, 2017, PPL was trading at an EV-to-EBITDA1 valuation multiple of 10.7x. Its five-year historical average and industry average multiple saw similar levels. Investors could shun PPL despite the fact that it’s fairly valued compared to its historical average. Its volatile earnings after the Brexit vote are due to the depreciating pound.

PPL Stock Looks Fairly Valued but Not Attractive: Here’s Why

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Peer valuation

PPL’s peer Duke Energy (DUK) is currently trading at an EV-to-EBITDA multiple near 10x. Southern Company’s (SO) valuation multiple is 12.0x.

The EV-to-EBITDA ratio gives a comparative idea of a company’s valuation, regardless of its capital structure. EV is the combination of a company’s market capitalization and debt, minus its cash holdings.

PPL Corporation appears to be trading at a discount considering its price-to-earnings multiple. Its current PE ratio is near 13x. US utilities’ PE ratio stands near 17x–18x.

The fragility of US utility stocks may become apparent when the Fed turns hawkish again on a rate hike this year. Fourth quarter earnings and interest rate developments are likely to pave the way for utility stocks going forward.

To learn which utilities may offer attractive upsides in 2017, please read A Look at S&P 500 Utilities with Attractive Upsides in 2017.

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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