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Will NextEra Energy Continue Its Strong Performance in 1Q17?

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Part 5
Will NextEra Energy Continue Its Strong Performance in 1Q17? PART 5 OF 7

NextEra Energy Stock: Is It Fairly Valued?

Market performance

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.

NextEra Energy Stock: Is It Fairly Valued?

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Valuation

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.

Among its peers, Duke Energy (DUK) is trading at a valuation multiple of 10.0x, while Southern Company’s (SO) ratio is near 12.0x.

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.

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