What’s Duke Energy’s Valuation after 1Q17 Results?
Duke Energy’s valuation
On May 9, 2017, Duke Energy (DUK) stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple near 10.3x. The industry average valuation is also around the same levels. Duke’s five-year average EV-to-EBITDA multiple is 11.0x.
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.
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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.
Duke Energy’s price-to-earnings multiple is near 21x. US utilities’ average PE multiple is near 20x. 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.
US utilities have been trading at premium valuations for quite a long time now. The last significant downfall that US utility stocks witnessed was in mid-2016. After the 2016 elections, utilities again started rallying despite the increased possibility of interest rate hikes. Going forward, higher interest rates could affect utilities negatively.
Read which utility has a better dividend profile among Southern Company and Duke Energy in Southern Company and Duke Energy: A Dividend Yield Showdown?