Why Exelon Could Be the Only Large-Cap SPX Utility Trading at a Fair Valuation
While US utilities continue to trade at an average EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 11x, Exelon (EXC) stock is currently trading at 7.6x. Exelon’s five-year historical average EV-to-EBITDA stands at 8.0x—a discount not only next to peers but also next to its historical average.
By comparison, industry giants NextEra Energy (NEE) and Duke Energy (DUK) are now trading at valuation multiples of 13x and 12x, respectively—at significant premiums to their historical average valuations.
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FirstEnergy (FE), Exelon’s peer and one of the leading competitive utilities, is currently trading at an EV-to-EBITDA valuation multiple of 8.4x. Its five-year historical average stands at ~10x. Public Service Enterprise Group (PEG) trades at a valuation ratio of 11x—way higher than its five-year average of 8x.
Competitive utilities—except Public Service Enterprise Group—appear to be trading at relatively reasonable valuations compared to broader utilities (XLU). Volatile earnings could be one of the main reasons behind competitive utilities’ discounted valuations.
Exelon’s relatively fair valuation might have triggered a rally in its stock. In the past year, Exelon stock has gained ~10%, while the Utilities Select Sector SPDR ETF (XLU) rose 8% during this period.