How PPL’s Current Valuation Stands up to SO and DUK
On February 21, 2017, PPL Corporation (PPL) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 10.5x. Its five-year historical average and industry average multiple stands around similar levels.
PPL seems fairly valued compared to its historical and industry average multiple. US utilities have turned relatively cheaper compared to their towering valuations last year. Their stock price correction could be one of the main reasons behind the fair valuation.
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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.
Where do peers stand?
PPL Corporation appears to be trading at a discount considering its price-to-earnings multiple. Its current PE ratio is near 14x. US utilities’ PE ratio stands near 17x–18x.
PPL stock is currently trading near its levels one year ago. However, the Utilities Select Sector SPDR (XLU) managed to gain 8% in the past year. During the same period, SPY rose by over 20%. The Fed’s pace of interest rate hike remains an important cue for utilities stocks.
To learn about NextEra Energy’s detailed dividend profile, check out Market Realist’s Why NextEra Energy Could Be a Sensible Dividend Option.
We’ll discuss PPL’s dividend yield in the next part of this series.