PPL’s Valuation Compared to Utility Giants
On April 3, 2017, PPL Corporation (PPL) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 11x. Its five-year historical average and industry average multiple are ~10.5x. PPL seems to be trading at a marginal premium compared to its historical and industry average multiple.
US utilities 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.
Duke Energy (DUK) seems fairly valued compared to PPL. Currently, it’s valued at 10.2x. Renewables giant NextEra Energy (NEE) and Southern Company (SO) are trading at a valuation multiple of 12x. Dominion Resources (D), another large-cap utility, is trading at a valuation of 15x.
US utilities (XLU) appear to be trading at a premium considering their PE (price-to-earnings) multiple. Historically, they traded near a PE multiple of 15x–16x. Currently, they’re above 19x. In 2016, utilities’ PE ratio was above 20x. Duke Energy and Southern Company are both trading at PE multiples near 20x. PPL is trading near 14x.
Very few utilities are trading at fair valuations. However, utilities are fairly valued compared to their valuations last year.