Over the last couple of quarters, the rallying US dollar has marred AES’s (AES) earnings. This has been reflected in its stock performance. AES has lost more than 18% in the last 12-month period.
AES’s valuation after its 4Q15 earnings
As of February 25, 2016, AES is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 7.7x. Its average five-year EV-to-EBITDA is 6.7x. This shows that AES is trading at a premium compared to its own five-year historical EV-to-EBITDA valuation.
AES’s forward EV-to-EBITDA for 2016, using its 2016 EBITDA estimate, is 6.5x. This indicates expectations of higher EBITDA for AES in 2016. The utility sector’s (VPU) EV-to-EBITDA average is 8.7x. In comparison, Pinnacle West Capital has an EV-to-EBITDA ratio of 8.2x, while AES’s large-cap peer Duke Energy (DUK) has a ratio of 10.5x.
The EV-to-EBITDA multiple is a valuation metric that indicates whether a stock is overvalued or undervalued, regardless of a company’s capital structure.
AES has increased its quarterly dividend by 10% as of 1Q16. It paid $0.40 dividends per share in 2015. As of February 25, 2016, its dividend yield stands at 4.6%, which is slightly above the industry average.