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Analyzing Southern Company’s 1Q17 Earnings and Growth Prospects

PART:
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Part 4
Analyzing Southern Company’s 1Q17 Earnings and Growth Prospects PART 4 OF 6

SO, DUK, and NEE: Analyzing the Valuations of Top US Utilities

Valuation

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.

SO, DUK, and NEE: Analyzing the Valuations of Top US Utilities

In comparison, Duke Energy’s (DUK) EV-to-EBITDA multiple is 10.2x, while Dominion Resources’ (D) multiple is 15.0x. NextEra Energy (NEE) has a multiple of 12.2x.

Among the top US utilities, Duke Energy seems to be trading at a fairer valuation than its peers.

PE multiple

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?

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