NextEra Energy Stock: Is It Fairly Valued?
NextEra Energy (NEE), the largest utility by market capitalization, had a remarkable ride on bourses in the last few months. Its stock outperformed peers by a huge margin and rose nearly 12% in the past year. In comparison, the Utilities Select Sector SPDR ETF (XLU) rose 6% and the SPDR S&P 500 ETF (SPY) (SPX-INDEX) rose 5% during the same period. Notably, the utility sector forms 3.2% of SPY.
Due to NextEra Energy’s strong quarterly earnings and the expected Oncor acquisition, the stock continued to trade at elevated levels. Currently, NextEra Energy stock appears to be trading at a premium compared to its historical average and the industry’s average multiple.
Interested in NEE? Don't miss the next report.
Receive e-mail alerts for new research on NEE
Currently, NextEra Energy is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 12.0x. The industry’s average valuation stands near 10.0x, while NextEra Energy’s five-year average EV-to-EBITDA is 11.0x.
The EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, regardless of its capital structure. EV refers to the combination of a company’s debt and market capitalization, minus its cash holdings.