What Does Xcel Energy’s Current Valuation Indicate?
So far, Xcel Energy (XEL) stock has rallied nearly 10% this year, while the Utilities Select Sector SPDR ETF (XLU) has managed to rise 6% during the same period. The SPDR S&P 500 ETF (SPY) (SPX-INDEX) has risen 5% during the same period. Xcel Energy makes up more than 3.5% of XLU. Notably, the utility sector makes up nearly 3.2% of SPY.
The following chart compares the performances of Xcel Energy, XLU, and SPY over the past year.
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Xcel Energy stock appears to be trading at a premium to both its historical average and the industry average. Currently, the stock is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 10.6x. Xcel Energy’s average five-year EV-to-EBITDA multiple is 9.6x, while the industry average is near 10.0x.
Remember, the EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, regardless of its capital structure. Specifically, EV represents the combination of a company’s debt and market capitalization, minus its cash holdings.
Duke Energy (DUK), one of the largest utilities by market capitalization, has a valuation multiple near 10.0x. In comparison, Southern Company (SO) is trading at a premium valuation of 12.2x, while Dominion Resources’ (D) ratio is 15.0x and NextEra Energy (NEE) is trading at 12.0x.
Among the top US utilities, Duke Energy seems to be trading at the fairest valuation among its peers.
To learn more, read Duke Energy’s Valuation Compared to Its Peers.