These US Utilities Are Trading at Towering Valuations
Dominion Energy’s valuation
Dominion Energy (D) is currently trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 15x. Its five-year average valuation multiple is around 14x, while the industry average is near 10x. Given the historical and industry average, Dominion Energy appears to be trading at a fair premium.
Nearly all major utilities (XLU) seem currently overpriced, likely due to the rally they’ve shown so far this year.
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By comparison, Duke Energy (DUK) is currently trading at an EV-to-EBITDA multiple of 11x while Southern Company’s ratio (SO) is near 12x. Renewables giant NextEra Energy (NEE) is trading at a valuation multiple of 12x.
Remember, the EV-to-EBITDA ratio gives us a comparative idea of a company’s valuation, regardless of the company’s capital structure. EV refers to the combination of a company’s market capitalization and debt, minus its cash holdings.
US utilities appear to be trading at a premium, considering their PE (price-to-earnings) multiples. Dominion Energy’s PE multiple is near 23x, while the industry average PE multiple is around 21x. Duke Energy’s PE multiple is 23x, while Southern Company’s is around 19x.
US utilities, on average, have traded at a PE multiple of around 15x–17x. Their current multiple of 21x appears to be very high compared to the historical average.
You can read more about utilities in Market Realist’s Where US Utilities Stand ahead of the Fed’s Probable Rate Hike. Continue to the next part for a look at dividends.