Xcel Energy’s Valuation Goes Toe to Toe with Peers
Xcel Energy’s valuation
Xcel Energy (XEL) stock appears to be trading at a premium to both its historical average and the industry average. The stock is currently trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 10.6x. XEL’s average five-year EV-to-EBITDA multiple is also 9.6x, while the industry average is near 10.0x.
Notably, at this point in 2017, US utilities have begun to look relatively expensive again—most likely due to the rally among many utility stocks over the past six months—and so very few US utility stocks are trading at fair valuations.
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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 utility by market capitalization, has a valuation multiple of near 10.0x. By 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 now trading at 12.0x.
Among the top US utilities, Duke Energy seems to be trading at the fairest valuation among peers. (Check out Market Realist’s series Duke Energy’s Valuation Compared to Its Peers.)
Notably, US utilities (XLU) appear to be trading at premiums based on their current PE (price-to-earnings) multiples as well, with the industry average having already crossed the 20x mark. Historically, utilities have traded near a PE multiple of 15x–16x. Xcel Energy has a current PE multiple of ~20x.
In the next part, we’ll discuss dividends.