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Will NextEra Energy's Key Indicators Light the Way?

PART:
1 2 3 4 5 6
Part 3
Will NextEra Energy's Key Indicators Light the Way? PART 3 OF 6

Where NextEra Energy’s Current Valuation Stands Next to Peers

NextEra Energy’s valuation

NextEra Energy (NEE) is currently trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 12x. The industry average valuation stands near 10.5x, while NEE’s five-year average EV-to-EBITDA is 11x.

Among peers, Duke Energy (DUK) is currently trading at a valuation multiple of 10.2x, while Southern Company’s (SO) ratio is near 12x. Compared to NextEra’s historical valuation and the industry average, NEE seems to be trading at a marginal premium.

Where NextEra Energy’s Current Valuation Stands Next to Peers

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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.

The chart above shows valuations of top four utilities by market capitalization. Among them, Duke Energy seems to be the only utility trading fairly compared to its historical average valuation.

PE multiple

US utilities (XLU) appear to be trading at a premium considering their PE (price-to-earnings) multiple. Historically, they have traded near a PE multiple of 15x–16x, but they are currently above 19x. NextEra Energy’s PE ratio is near 21x.

NextEra Energy stock has been trading at a premium for such a long time most likely due to its strong earnings in the past several quarters and its expected deal with Oncor. Interestingly, the stock still looks attractive to many investors, though it’s a bit pricey, likely given the company’s alluring dividend profile.

Continue to the next part for a closer look at NEE’s dividends.

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