These SPX Utilities Are Trading Cheap Compared to Peers
Recently, large-cap utilities (XLU) witnessed notable weakness likely due to their premium valuations. The utility stocks under our consideration are currently trading at a relatively fair valuation compared to their peers. These utility stocks might attract investors.
On average, utilities are currently trading at an EV-to-EBITDA valuation multiple of 11x—higher than their historical average EV-to-EBITDA ratio of 9x.
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Will cheaper valuation trigger rally?
SCANA (SCG) is trading at an EV-to-EBITDA multiple of 10x—relatively cheaper than the industry average.
FirstEnergy (FE) stock’s valuation ratio stands at 8.5x—lower than its five-year historical average of 10x. FirstEnergy stock seems cheaper compared to the industry’s average valuation.
NRG Energy (NRG) rose the most among the SPX Utilities. Currently, it’s trading at an EV-to-EBITDA multiple of 11.6x. Its five-year historical average is near 11x.
AES’s (AES) EV-to-EBITDA ratio is near 11.5x—marginally above the industry average. AES stock appears expensive compared to its historical average of 7.5x.
All of these utilities, except NRG Energy, have remarkably higher dividend yields compared to the industry average. FirstEnergy is trading at a dividend yield of 4.5%, while AES and SCANA offer a yield of 4.1%.
NRG Energy yields 0.5%—way lower than its peers. NRG Energy trimmed its per share dividends from $0.14 to $0.03 in 2Q16 in order to retain cash.