Analyzing AES’s Valuation and Bright Upside Potential

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Part 3
Analyzing AES’s Valuation and Bright Upside Potential PART 3 OF 6

What’s AES’s Current Valuation?


AES (AES) stock seems to be trading at a relatively fair valuation compared to the industry average. However, it seems to be trading at a premium to its historical average. On March 8, 2017, it was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 8.3x. Currently, its five-year historical EV-to-EBITDA multiple is near 7.5x. The industry average is a little over 10x.

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.

What&#8217;s AES&#8217;s Current Valuation?

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Peer valuation

Hybrid utility giant Exelon (EXC) is currently trading at an EV-to-EBITDA valuation multiple of 8x, while FirstEnergy (FE) is near 9x.

Utility giant Duke Energy is trading at a valuation multiple of 10.3x, while Southern Company and NextEra Energy (NEE) are currently trading at a multiple of 12x.

Utility stocks (XLU) could turn volatile in the upcoming trading sessions. The possibility of an interest rate hike during the Fed’s March meeting rose significantly. So, we might see utility stocks fall if the Fed raises rates. Investors could turn to bonds, which would make utilities stocks relatively cheap.

To learn more, read How Changes in Duke Energy’s Key Metrics Could Affect Its Stock.


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