SO, DUK, and NEE: Analyzing the Valuations of Top US Utilities
Southern Company (SO) appears to be trading at a premium to its historical average and the industry average. Currently, it’s trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.2x. Southern Company’s five-year historical average multiple is near 11.0x, while the industry average is near 10.0x.
The EV-to-EBITDA multiple gives us a comparative idea of a company’s valuation, regardless of its capital structure. EV refers to the combination of a company’s market capitalization and debt minus its cash holdings.
Among the top US utilities, Duke Energy seems to be trading at a fairer valuation than its peers.
US utilities seem to be trading at a premium given their price-to-earnings multiples (or PE). Southern Company is currently trading at a PE of 20x, while Duke Energy and NextEra Energy have PEs of over 21x. US utilities’ PEs generally stand in the range of 15x–16x.
Southern Company has had an unimpressive run recently. However, from a dividend investor’s perspective, the utility looks attractive. To read more about its dividend profile, read What Could Impact Southern Company’s Dividends?