Analyzing Duke Energy’s Valuation ahead of Its 1Q17 Earnings
Duke Energy’s valuation
Among the top US utilities, Duke Energy (DUK) seems to be trading at a fairer valuation than its peers. On May 1, 2017, DUK stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple near 10.2x. The industry average valuation is also near 10.2x. Duke’s five-year average EV-to-EBITDA multiple is 11.0x.
Duke Energy seems fairly valued compared to peers such as Southern Company (SO) and NextEra Energy (NEE). Both these companies are trading at valuation multiples above 12.0x. Dominion Resources (D) is trading at a valuation multiple of 15.0x.
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An EV-to-EBITDA ratio shows whether a stock is undervalued or overvalued, regardless of its capital structure. EV represents the combination of a company’s debt and market capitalization, minus its cash holdings.
Duke Energy appears to be trading at a premium, given its PE (price-to-earnings) multiple of 21.0x. Southern Company has a PE multiple of 19.0x. Historically, utilities have traded at an average PE multiple of 15.0x–16.0x. NextEra Energy and Dominion Resources have current PE multiples above 21.0x.
Duke Energy stock has done fairly well compared to many of its peers. It has risen 5.0% in the last year, while the Utilities Select Sector SPDR ETF (XLU) has risen 6.0%. Southern Company has fallen 1.0% and NextEra Energy (NEE) has risen 14.0% in the same period, outperforming its peers by a huge margin.
To learn about NextEra Energy and its dividends, read Why NextEra Energy Could Be a Sensible Dividend Option.