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Xcel Energy’s 4Q16 Earnings on February 2: What to Expect

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Part 4
Xcel Energy’s 4Q16 Earnings on February 2: What to Expect PART 4 OF 6

Xcel Energy Stock Seems Fairly Priced ahead of 4Q16 Earnings

Valuation

Xcel Energy (XEL) seems to currently be trading at a fair valuation. On January 20, 2017, it was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 10.0x. Its average five-year EV-to-EBITDA multiple is also 10.0x. The industry average is just above 10.0x.

US utilities have become cheaper in the last few months, likely due to the stock price correction during the same period. The Fed’s aggressive interest rate hike target for 2017 could continue to put downward pressure on these companies going forward.

Xcel Energy Stock Seems Fairly Priced ahead of 4Q16 Earnings

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Where do Xcel’s peers stand?

Duke Energy (DUK), the largest utility by market capitalization, is near a valuation multiple of 10.0x. Southern Company (SO) appears to be trading at a premium valuation of 12.0x.

An EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, irrespective of its capital structure. EV represents the combination of a company’s debt and market capitalization, minus its cash holdings.

Utilities going forward

Xcel Energy rose more than 12.0% in the last year, while the Utilities Select Sector SPDR ETF (XLU) rose 10.0% in the same period. Utilities have been trading in a narrow range for the last few months.

Even though an interest rate hike is very possible this year, US utilities don’t seem that fragile. XEL stock movements may be hampered at times, but the company’s dividend payouts growth seems pretty strong.

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