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How PPL Looks ahead of Its 1Q17 Earnings

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Part 4
How PPL Looks ahead of Its 1Q17 Earnings PART 4 OF 7

What Does PPL’s Current Valuation Indicate?

Market performance

PPL (PPL) stock has outperformed peers by a fair margin so far this year. PPL stock soared 11% while the Utilities Select Sector SPDR ETF (XLU) has managed to rise 7% during the same period. The SPDR S&P 500 ETF (SPY) (SPX-INDEX) has risen 4% during the same period. PPL makes up more than 4% of XLU. The utility sector makes up nearly 3.2% of SPY. The following chart compares the performances of PPL, XLU, and SPY over the past year.

What Does PPL’s Current Valuation Indicate?

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PPL’s valuation

On April 19, 2017, PPL stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 11.0x. Its five-year historical average and industry average multiple are both ~10.5x. PPL seems to be trading at a marginal premium compared to its historical and industry average multiple.

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.

Peer Duke Energy (DUK) is currently trading at an EV-to-EBITDA multiple near 10x. Southern Company’s (SO) valuation multiple is 12.0x, and Xcel Energy’s multiple is near 10.6x.

Among the top US utilities, Duke Energy seems to be trading at the fairest valuation. To learn more, read Duke Energy’s Valuation Compared to Its Peers.

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