Dominion Resources (D) reported 4Q15 earnings on February 1, 2016. The stock fell 2.8% on the day of the announcement. Dominion Resources showed dismal performance last year, correcting by more than 10% during the year. The graph below shows the stock price movement of Dominion Resources, Duke Energy (DUK), and the Utilities Select Sector SPDR ETF (XLU).
As of February 1, 2016, Dominion Resources is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.8x. Its five-year historical average EV-to-EBITDA multiple stands near 12.1x. The utility sector’s (IDU) average ratio stands at 10.2x.
Dominion’s forward EV-to-EBITDA, with an estimated EBITDA for 2016, stands at 10.9x. This indicates expectations of a higher EBITDA in 2016. Dominion Resources’ EV-to-EBITDA multiple is higher than Duke Energy’s (DUK) at 9.5x. American Electric Power’s (AEP) EV-to-EBITDA stands at 8x, while Exelon’s (EXC) multiple stands at 5.5x. EV-to-EBITDA is a valuation metric that indicates whether a stock is overvalued or undervalued, regardless of capital structure.
Dominion Resources plans to spend $19.2 billion in the next five years. This spending may raise its current debt levels. Dominion has a total debt of $28.9 billion as of December 31, 2015. Of this amount, $23.5 billion is long-term debt, and $5.4 billion is short-term borrowing.
On February 1, 2016, S&P (Standard & Poor’s) downgraded Dominion Resources to a credit rating of BBB+ with a stable outlook. The move came after Dominion announced its merger with Questar. With its investment-grade credit rating, Dominion may raise funds from capital markets, if needed.