US power companies: Comparing valuation multiples

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Exelon’s top ranking

Exelon Corporation (EXC) is the largest competitive power company in the US by market cap and enterprise value (or EV). And Exelon operates in regions in the US where the power business is highly competitive.

Valuation

EV/EBITDA (earnings before interest, taxes, depreciation, and amortization)

Exelon has the lowest EV/EBITD multiple—7.6x.

Dynegy Inc. (DYN) has the highest EV/EBITDA multiple in the group. Its EV/EBITDA is 21.9x. This shows investors have partially priced in its recent deal to acquire power generation assets from Duke and Energy Capital Partners.

Price-to-earnings ratio (or PE)

Exelon has a PE multiple of 16.4x currently and a forward PE multiple of 14.9x. Exelon’s and PPL Corporation’s (PPL) PEs are close to the median multiple of the group. Both of these companies are part of the Select Sector Utilities Select Sector SPDR Fund (XLU).

Forward multiples are a useful metric for gauging relative valuation. A higher multiple usually indicates a richer valuation for a company.

AES Corporation (AES) trades at the lowest PE multiple in the group. The forward PE for AES is also low, indicating investors do not have any expectation that the company will see earnings growth within the next year.

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