NextEra Energy Stock Looks Appealing despite Being Pricey
At $63.3 billion, NextEra Energy (NEE) is the largest utility in the US by market capitalization. It had an incredible run on bourses in the past year. NextEra Energy stock outperformed peers by a huge margin and rose more than 16% in the past year. In comparison, the Utilities Select Sector SPDR ETF (XLU) rose 9% and the SPDR S&P 500 ETF (SPY) (SPX-INDEX) rose 12% during the same period. Notably, the utility sector forms 3.2% of SPY.
Interested in DUK? Don't miss the next report.
Receive e-mail alerts for new research on DUK
Due to NextEra Energy’s strong quarterly earnings growth, 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.
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.